UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
Check the appropriate box:
| ☒ | Preliminary Proxy Statement | ||||
| ☐ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | ||||
| ☐ | Definitive Proxy Statement | ||||
| ☐ | Definitive Additional Materials | ||||
| ☐ | Soliciting Material under §240.14a-12 | ||||
CM LIFE SCIENCES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| ☐ | No fee required. | |||||||||||||
| ☐ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | |||||||||||||
| (1) | Title of each class of securities to which transaction applies: | |||||||||||||
| Not applicable | ||||||||||||||
| (2) | Aggregate number of securities to which transaction applies: | |||||||||||||
| Not applicable | ||||||||||||||
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | |||||||||||||
| Not applicable | ||||||||||||||
| (4) | Proposed maximum aggregate value of transaction: | |||||||||||||
$2,837,595,123.44 | ||||||||||||||
| (5) | Total fee paid: | |||||||||||||
$309,582 1 | ||||||||||||||
| ☐ | Fee paid previously with preliminary materials. | |||||||||||||
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1.Calculated pursuant to Section 6(b) of the Securities Act at a rate equal to $109.10 per $1,000,000 of the proposed maximum aggregate offering price.
PRELIMINARY PROXY STATEMENT - SUBJECT TO COMPLETION, DATED MAY 6, 2021
CM LIFE SCIENCES, INC.
c/p Corvex Management
667 Madison Avenue
New York, New York
Dear Stockholder of CM Life Sciences, Inc.:
You are cordially invited to attend the special meeting of stockholders (the “Special Meeting”) of CM Life Sciences, Inc. (“we,” “us”, “our”, “CMLS” or the “Company”) to be held on [ ], 2021 at [ ]Eastern time. In light of ongoing developments related to coronavirus (COVID-19), after careful consideration, the Company has determined that the Special Meeting will be a virtual meeting conducted exclusively via live webcast in order to facilitate stockholder attendance and participation while safeguarding the health and safety of our stockholders, directors and management team. You or your proxyholder will be able to attend and vote at the Special Meeting online by visiting https://www.cstproxy.com/CMLS/sm2021 and using a control number assigned by Continental Stock Transfer & Trust Company. To register and receive access to the virtual meeting, registered stockholders and beneficial stockholders (those holding shares through a stock brokerage account or by a bank or other holder of record) will need to follow the instructions applicable to them provided in the proxy statement.
On February 9, 2021, the Company and its wholly owned subsidiary, S-IV Sub, Inc. (“Merger Sub”), entered into an Agreement and Plan of Merger with Mount Sinai Genomics, Inc. d/b/a Sema4 (“Sema4”) (the “Merger Agreement”). If the Merger Agreement is approved by Company stockholders at the Special Meeting (and all other conditions pursuant to the Merger Agreement are either satisfied or waived) Merger Sub will merge with and into Sema4, with Sema4 surviving the merger as a wholly owned subsidiary of the Company. Upon the consummation of the transactions contemplated by the Merger Agreement (the “Business Combination”), the Company will change its name to [ ]. As described in this proxy statement, CMLS’s stockholders are being asked to consider and vote upon, among other things, the Business Combination and the other proposals set forth herein. For ease of reference, certain capitalized terms used in this proxy statement are defined below in “Frequently Used Terms”.
Subject to the terms and conditions of the Merger Agreement, each share of Sema4 Class B common stock issued and outstanding immediately prior to the effective time will be converted into 1/100th of a share of Sema4 Class A common stock as set forth in the Merger Agreement. Immediately thereafter, each share of Sema4 Common Stock and Sema4 Preferred Stock (other than Excluded Shares and Dissenting Shares (each as defined in the Merger Agreement)) issued and outstanding immediately prior to the effective time will be cancelled and automatically deemed for all purposes to represent the right to receive a portion of the merger consideration, with each Sema4 Stockholder being entitled to receive (collectively, clauses (i) through (iii), the “merger consideration”) (i) its pro rata share of the Closing Available Cash (as defined in the Merger Agreement) if such Sema4 Stockholder has made an election to receive cash, and, if so elected, such Sema4 Stockholder’s pro rata share excess amount of any closing available excess cash, provided that in no event will a Sema4 Stockholder’s cash payment exceed an amount equal to the product of such Sema4 Stockholder’s total outstanding shares multiplied by the Per Share Amount; (ii) a number of shares of Company Class A common stock equal to the quotient of: (A)(1) the product of such Sema4 Stockholder’s total outstanding shares multiplied by the Per Share Amount minus (2) such Sema4 Stockholder’s stockholder cash payment amount divided by (B) $10.00; and (iii) its pro rata share of any earn out shares to which such Sema4 Stockholder is entitled pursuant to the terms of the Merger Agreement (the “Earnout”), including the Earnout RSUs, which Earnout RSUs are subject to vesting and will not be legally issued and outstanding shares of Company common stock at the closing of the Business Combination (the “Closing”), in each case of clauses (i), (ii) and (iii), without interest, upon surrender of stock certificates representing all of such Sema4 Stockholder’s Sema4 Common Stock and Sema4 Preferred Stock and delivery of the other documents required pursuant to the Merger Agreement. As of the effective time, each Sema4 Stockholder shall cease to have any other rights in and to Sema4 securities and each certificate relating to ownership of shares of Sema4 Common Stock and Sema4 Preferred Stock (other than Excluded Shares) will only represent the right to receive the applicable portion of the merger consideration.
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Following the Closing, within five Business Days (as defined in the Merger Agreement) after the occurrence of a Triggering Event, the Company shall issue or cause to be issued to the Sema4 Stockholders (other than holders of Dissenting Shares and Excluded Shares) and the Earn-Out Service Providers, the following shares of Company Class A common stock (which shall be equitably adjusted for stock splits, reverse stock splits, stock dividends, reorganizations, recapitalizations, reclassifications, combination, exchange of shares or other like change or transaction with respect to Company Class A common stock occurring on or after the Closing, the “Earn-Out Shares”), upon the terms and subject to the conditions set forth in the Merger Agreement and other related agreements: (i) upon the occurrence of Triggering Event I, a one-time issuance of a number of Earn-Out Shares equal to 3.66% of the Earn-Out Total Outstanding Shares; (ii) upon the occurrence of Triggering Event II, a one-time issuance of a number of Earn-Out Shares equal to 3.67% of the Earn-Out Total Outstanding Shares; and (iii) upon the occurrence of Triggering Event III, a one-time issuance of a number of Earn-Out Shares equal to 3.67% of the Earn-Out Total Outstanding Shares. Upon the last day of any calendar year, the Company shall issue or cause to be issued to each Sema4 Stockholder (other than holders of Dissenting Shares) and Earn-Out Service Provider (in accordance with its respective Earn-Out Pro Rata Share and, in the case of the Earn-Out Service Providers, in accordance with the terms of the applicable Earn-Out Award Agreement) the Earn-Out Shares that (i) are in the Forfeiture Pool as in effect as of such date and (ii) would have been issuable to Sema4 Stockholders pursuant to the Merger Agreement as a result of the occurrence of a Triggering Event had they not been made subject to an award of Earnout RSUs.
Sema4 Stockholders and the Earn-Out Service Providers shall be entitled to receive Earn-Out Shares upon each Triggering Event, provided, however that each Triggering Event may only occur once, if at all, and in no event shall the Sema4 Stockholders and Earn-Out Service Providers, in the aggregate, be entitled to receive an aggregate number of Earn-Out Shares equal to more than 11% of the Earn-Out Total Outstanding Shares. Earn-Out Shares will be issued from the Forfeiture Pool only if the applicable Triggering event occurs.
Upon the Closing, the former Sema4 equity holders are expected to hold, in the aggregate, approximately 63.1% of the issued and outstanding shares of Company common stock. The foregoing percentage excludes 29,367,501 options for the purchase of 29,367,501 shares of Company common stock, which are authorized and subject to stock options but will not yet be issued at closing, as further described in the pro forma capitalization table in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information — Description of the Transaction.” Any cash not paid to Sema4 Stockholders as merger consideration under the terms of the Merger Agreement will remain on the balance sheet of the combined company and be available for the payment of transaction expenses and other combined company uses.
In connection with the Business Combination, the Company entered into subscription agreements, each dated as of February 9, 2021 (the “Subscription Agreements”), with certain institutional investors, including affiliates of our Sponsor and existing investors in Sema4 (collectively, the “PIPE Investors”), pursuant to which, among other things, the Company agreed to issue and sell to the PIPE Investors, in private placements to close immediately prior to the Closing, an aggregate of 35,000,000 shares of common stock at $10.00 per share, for an aggregate purchase price of $350,000,000.
The Company and Sema4 cannot complete the Business Combination unless the Company’s stockholders approve the Business Combination, including the issuance of common stock to Sema4 equity holders as merger consideration, and certain of the other proposals contained herein. The Company is sending you this proxy statement to ask you to vote in favor of the Business Combination Proposal, as described below, and the other matters described in this proxy statement.
At the Special Meeting, Company stockholders will be asked to consider and vote upon a proposal (the “Business Combination Proposal” or “Proposal No. 1”) to adopt the Merger Agreement, a copy of which is attached to the accompanying proxy statement as Annex A, and approve the transactions contemplated thereby, including the Business Combination. In addition, you are being asked to consider and vote upon a proposal to approve, for purposes of complying with applicable Nasdaq Stock Market (the “Nasdaq”) listing rules, the issuance of more than 20% of the Company’s outstanding common stock in connection with the Business Combination and the Subscription Agreements, including up to 138,521,802 shares of common stock to the Sema4 equity holders in the Business Combination and 35,000,000 shares of common stock to the PIPE Investors (the “Nasdaq Stock Issuance
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Proposal” or “Proposal No. 2”); a proposal to adopt the Amended and Restated Certificate of Incorporation in the form attached hereto as Annex B (the “Charter Approval Proposal” or “Proposal No. 3”); a separate proposal with respect to certain governance provisions in the Amended and Restated Certificate of Incorporation, presented in accordance with SEC requirements and which will be voted upon on a non-binding advisory basis (the “Governance Proposal” or “Proposal No. 4”); a proposal to approve the [ ] 2021 Equity Incentive Plan (the “Incentive Plan”) (the “Incentive Plan Proposal” or “Proposal No. 5”); a proposal to approve the [ ] 2021 Employee Stock Purchase Plan (the “ESPP”) (the “ESPP Proposal” or “Proposal No. 6”); a proposal to consider and vote upon a proposal to elect [____] directors to serve on the post-combination company’s board of directors, each for a three-year term, or until such director’s successor has been duly elected and qualified, or until such director’s earlier death, resignation, retirement or removal; alternatively, in the event the condition precedent proposals (as defined herein), including the Charter Approval Proposal, are not approved, to elect two directors as Class I directors on the Company’s board of directors, each to serve for a term of three years expiring at the annual meeting of stockholders to be held in 2024 or until such director’s successor has been duly elected and qualified, or until such director’s earlier death, resignation, retirement or removal (the “Director Election Proposal” or “Proposal No. 7”); a proposal to adjourn the Special Meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if there are insufficient votes for, or otherwise in connection with, the approval of the Business Combination Proposal, the Nasdaq Stock Issuance Proposal, the Charter Approval Proposal, the Incentive Plan Proposal or the ESPP Proposal (the “Adjournment Proposal” or “Proposal No. 8”); and the ratification of Withum as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020 (the “Auditor Ratification Proposal” or “Proposal No. 9”).
Each of these proposals is more fully described in this proxy statement, which each stockholder is encouraged to carefully read.
Pursuant to our current certificate of incorporation, we are providing our public stockholders with the opportunity to redeem, upon the Closing, shares of common stock for cash equal to the pro rata share of the aggregate amount on deposit (as of two business days prior to the Closing) in the trust account (the “Trust Account”) that holds the proceeds of our IPO (including interest not previously released to the Company to pay franchise and income taxes), subject to certain limitations. For illustrative purposes, based on the balance of the Trust Account of approximately $442 million as of January 29, 2021, the estimated per share redemption price would have been approximately $10.00. Public stockholders may elect to redeem their shares even if they vote for the Business Combination. Any request to redeem public shares, once made, may be withdrawn at any time until the deadline for exercising redemption requests and thereafter, with our consent, until the Closing. If we receive valid redemption requests from holders of public shares prior to the redemption deadline, we may, at our sole discretion, following the redemption deadline and until the date of Closing, seek and permit withdrawals by one or more of such holders of their redemption requests. We may select which holders to seek such withdrawals of redemption requests from based on any factors we may deem relevant, and the purpose of seeking such withdrawals may be to increase the funds held in the Trust Account, including where we otherwise would not satisfy the closing condition that the amount in the Trust Account and the proceeds from the PIPE Investment equal or exceed $300,000,000, following payment of the aggregate amount of cash proceeds that will be required to satisfy any redemptions and payment of all Company and Sema4 transaction expenses.
Each redemption of shares of common stock by our public stockholders will reduce the amount in the Trust Account. The Merger Agreement provides that Sema4’s obligation to consummate the Business Combination is subject to the condition that that the amount in the Trust Account and the proceeds from the PIPE Investment equal or exceed $300,000,000, following payment of the aggregate amount of cash proceeds that will be required to satisfy any redemptions and payment of all Company and Sema4 transaction expenses. This condition to closing in the Merger Agreement is for the sole benefit of, and may be waived by, Sema4. If, as a result of redemptions of common stock by our public stockholders, this condition is not met (or waived by Sema4), then Sema4 may elect not to consummate the Business Combination. In addition, in no event will we redeem shares of our common stock in an amount that would result in the Company’s failure to have net tangible assets equaling or exceeding $5,000,001 (so that we are not subject to the SEC’s “penny stock” rules). Holders of our outstanding public warrants do not have redemption rights in connection with the Business Combination. Unless otherwise specified, the
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information in the accompanying proxy statement assumes that none of our public stockholders exercise their redemption rights with respect to their shares of common stock.
Our Sponsor and the Company’s officers and directors at the time of our IPO (together, our “Initial Stockholders”) have agreed to vote their shares of common stock in favor of the Business Combination. Currently, our Initial Stockholders own approximately 20% of our issued and outstanding shares of common stock. In addition, our Initial Stockholders have agreed to waive their redemption rights with respect to such shares.
We are providing the accompanying proxy statement and accompanying proxy card to our stockholders in connection with the solicitation of proxies to be voted at the Special Meeting (including following any adjournments or postponements of the Special Meeting). Information about the Special Meeting, the Business Combination and other related business to be considered by the Company’s stockholders at the Special Meeting is included in this proxy statement. Whether or not you plan to attend the Special Meeting, we urge all Company stockholders to read this proxy statement, including the Annexes and the accompanying financial statements of the Company and Sema4, carefully and in their entirety. In particular, we urge you to carefully read the section entitled “Risk Factors” of this proxy statement.
After careful consideration, our Board has approved the Merger Agreement and the transactions contemplated therein, and recommends that our stockholders vote “FOR” adoption of the Merger Agreement and approval of the transactions contemplated thereby, including the Business Combination, and “FOR” all other proposals presented to our stockholders in the accompanying proxy statement. When you consider the Board’s recommendation of these proposals, you should keep in mind that our directors and officers have interests in the Business Combination that may conflict with your interests as a stockholder. Please see the section entitled “Proposal No. 1 — Approval of the Business Combination — Interests of Certain Persons in the Business Combination” for additional information.
Approval of each of the Business Combination Proposal, the Nasdaq Stock Issuance Proposal, the Governance Proposal, the Incentive Plan Proposal, the ESPP Proposal and the Adjournment Proposal require the affirmative vote of a majority of the votes cast at the Special Meeting. Approval of the Charter Approval Proposal requires the affirmative vote of a majority of the outstanding shares of our common stock.
Your vote is very important. Whether or not you plan to attend the Special Meeting, please vote as soon as possible by following the instructions in this proxy statement to make sure that your shares are represented at the Special Meeting. If you hold your shares in “street name” through a bank, broker or other nominee, you will need to follow the instructions provided to you by your bank, broker or other nominee to ensure that your shares are represented and voted at the Special Meeting. Even if you have voted by proxy, you may still vote during the Special Meeting by visiting https://www.cstproxy.com/CMLS/sm2021 with your 12-digit control number assigned by Continental Stock Transfer & Trust Company included on your proxy card or obtained from them via email. The transactions contemplated by the Merger Agreement will be consummated only if the Business Combination Proposal, the Nasdaq Stock Issuance Proposal, the Charter Approval Proposal and the Incentive Plan Proposal are approved at the Special Meeting. The proposals in this proxy statement (other than the Governance Proposal, the Auditor Ratification Proposal and the Adjournment Proposal) are conditioned on the approval of the Business Combination Proposal.
If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted “FOR” each of the proposals presented at the Special Meeting. If you fail to return your proxy card or fail to instruct your bank, broker or other nominee how to vote, and do not attend the Special Meeting, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the Special Meeting. If you are a stockholder of record and you attend the Special Meeting and wish to vote at the Special Meeting, you may revoke your proxy and vote at the Special Meeting.
TO EXERCISE YOUR REDEMPTION RIGHTS, YOU MUST DEMAND THAT THE COMPANY REDEEM YOUR SHARES FOR A PRO RATA PORTION OF THE FUNDS HELD IN THE TRUST ACCOUNT AND TENDER YOUR SHARES TO THE COMPANY’S TRANSFER AGENT AT LEAST TWO BUSINESS DAYS PRIOR TO THE SPECIAL MEETING. YOU MAY TENDER YOUR SHARES BY EITHER DELIVERING YOUR SHARE CERTIFICATE TO THE TRANSFER AGENT OR BY DELIVERING YOUR
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SHARES ELECTRONICALLY USING DEPOSITORY TRUST COMPANY’S DWAC (DEPOSIT WITHDRAWAL AT CUSTODIAN) SYSTEM. IF THE BUSINESS COMBINATION IS NOT COMPLETED, THEN THESE SHARES WILL NOT BE REDEEMED FOR CASH. IF YOU HOLD THE SHARES IN STREET NAME, YOU WILL NEED TO INSTRUCT THE ACCOUNT EXECUTIVE AT YOUR BANK OR BROKER TO WITHDRAW THE SHARES FROM YOUR ACCOUNT IN ORDER TO EXERCISE YOUR REDEMPTION RIGHTS.
On behalf of our Board, I would like to thank you for your support of CM Life Sciences, Inc. and look forward to a successful completion of the Business Combination.
| By Order of the Board of Directors, | |||||
[ ], 2021 | |||||
| Eli Casdin | |||||
| Chief Executive Officer | |||||
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES REGULATORY AGENCY HAS APPROVED OR DISAPPROVED THE TRANSACTIONS DESCRIBED IN THIS PROXY STATEMENT, PASSED UPON THE MERITS OR FAIRNESS OF THE BUSINESS COMBINATION OR RELATED TRANSACTIONS OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY CONSTITUTES A CRIMINAL OFFENSE.
This proxy statement is dated [ ] , 2021 and is expected to be first mailed to Company stockholders on or about [ ] , 2021.
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NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS OF CM LIFE SCIENCES, INC.
TO BE HELD , 2021
To the Stockholders of CM Life Sciences, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of CM Life Sciences, Inc., a Delaware corporation (the “Company”), will be held on [ ] , 2021 at [ ] Eastern time (the “Special Meeting”). In light of ongoing developments related to coronavirus (COVID-19), after careful consideration, the Company has determined that the Special Meeting will be a virtual meeting conducted exclusively via live webcast in order to facilitate stockholder attendance and participation while safeguarding the health and safety of our stockholders, directors and management team. You or your proxyholder will be able to attend and vote at the Special Meeting online by visiting https://www.cstproxy.com/CMLS/sm2021 and using a control number assigned by Continental Stock Transfer & Trust Company. To register and receive access to the virtual meeting, registered stockholders and beneficial stockholders (those holding shares through a stock brokerage account or by a bank or other holder of record) will need to follow the instructions applicable to them provided in the proxy statement.
At the Special Meeting, you will be asked to consider and vote on proposals to:
1.Proposal No. 1 — The Business Combination Proposal — To approve and adopt the Agreement and Plan of Merger, dated as of February 9, 2021 as amended by the Amendment to Agreement and Plan of Merger dated May 3, 2021 (as it may be further amended and/or restated from time to time, the “Merger Agreement”) by and among the Company, its wholly owned subsidiary S-IV Sub, Inc. (“Merger Sub”), and Mount Sinai Genomics, Inc. (“Sema4”), a copy of which is attached to this proxy statement as Annex A, and approve the transactions contemplated thereby (the “Business Combination”), including the merger of Merger Sub with and into Sema4, with Sema4 surviving the merger as a wholly owned subsidiary of the Company, and the issuance of common stock to Sema4 equity holders as merger consideration;
2.Proposal No. 2 — The Nasdaq Stock Issuance Proposal — To approve, for purposes of complying with applicable listing rules of the Nasdaq Stock Market (the “Nasdaq”), the issuance of more than 20% of the Company’s outstanding common stock in connection with the Business Combination and Subscription Agreements, including up to 35,000,000 shares of our common stock to the PIPE Investors, which includes affiliates of CMLS Holdings LLC (our “Sponsor”) that subscribed for 9,500,000 shares of common stock, and up to 138,521,802 shares of our common stock to Sema4 equity holders;
3.Proposal No. 3 — The Charter Approval Proposal— To adopt the proposed Amended and Restated Certificate of Incorporation of the Company (the “Amended and Restated Certificate of Incorporation”) in the form attached hereto as Annex B;
4.Proposal No. 4 — Governance Proposal— To approve, on a non-binding advisory basis, a separate proposal with respect to certain governance provisions in the Amended and Restated Certificate of Incorporation in accordance with United States SEC requirements;
5.Proposal No. 5 — Incentive Plan Proposal — To approve the [ ] 2021 Equity Incentive Plan (the “Incentive Plan”), including the authorization of the initial share reserve under the Incentive Plan;
6.Proposal No. 6 — ESPP Proposal — To approve the [ ] 2021 Employee Stock Purchase Plan (the “ESPP”), including the authorization of the initial share reserve under the ESPP;
7.Proposal No. 7 — The Director Election Proposal — To consider and vote upon a proposal to elect [ ] directors to serve on the post-combination company’s board of directors, each for a three-year term annual meeting of stockholders or until such director’s successor has been duly elected and qualified, or until such director’s earlier death, resignation, retirement or removal; alternatively, in the event the condition precedent proposals (as defined below), including the Charter Approval Proposal, are not approved, to elect two directors as Class I directors on the Company’s board of directors, each to serve for
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a term of three years expiring at the annual meeting of stockholders to be held in 2024 or until such director’s successor has been duly elected and qualified, or until such director’s earlier death, resignation, retirement or removal (the “Director Election Proposal”); and
8.Proposal No. 8 — Adjournment Proposal — To approve, if necessary, the adjournment of the Special Meeting to a later date or dates to permit further solicitation and votes of proxies in the event that there are insufficient votes for, or otherwise in connection with, the approval of the Business Combination Proposal, the Nasdaq Stock Issuance Proposal, the Charter Approval Proposal, the Incentive Plan Proposal or the ESPP Proposal. This proposal will only be presented at the Special Meeting if there are not sufficient votes to approve the Business Combination Proposal, the Nasdaq Stock Issuance Proposal, the Charter Approval Proposal, the Incentive Plan Proposal or the ESPP Proposal.
9.Proposal No. 9 --- Auditor Ratification Proposal --- The ratification of Withum as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020.
The above matters are more fully described in this proxy statement, which also includes, as Annex A, a copy of the Merger Agreement, and Annex B, a copy of the Amended and Restated Certificate of Incorporation. We urge you to carefully read this proxy statement in its entirety, including the Annexes and accompanying financial statements of the Company and Sema4.
The record date for the Special Meeting is [ ] , 2021. Only stockholders of record at the close of business on that date may vote at the Special Meeting or any adjournment thereof. A complete list of our stockholders of record entitled to vote at the Special Meeting will be available for ten days before the Special Meeting at our principal executive offices for inspection by stockholders during ordinary business hours for any purpose germane to the Special Meeting and electronically during the Special Meeting at https://www.cstproxy.com/CMLS/sm2021.
Pursuant to our current certificate of incorporation, we are providing our public stockholders with the opportunity to redeem, upon the Closing, shares of common stock for cash equal to the pro rata share of the aggregate amount on deposit (as of two business days prior to the Closing) in the Trust Account that holds the proceeds of our IPO (including interest not previously released to the Company to pay franchise and income taxes), subject to certain limitations. For illustrative purposes, based on the balance of the Trust Account of approximately $442 million as of January 29, 2021, the estimated per share redemption price would have been approximately $10.00. Public stockholders may elect to redeem their shares even if they vote for the Business Combination. Any request to redeem public shares, once made, may be withdrawn at any time until the deadline for exercising redemption requests and thereafter, with our consent, until the Closing. If we receive valid redemption requests from holders of public shares prior to the redemption deadline, we may, at our sole discretion, following the redemption deadline and until the date of Closing, seek and permit withdrawals by one or more of such holders of their redemption requests. We may select which holders to seek such withdrawals of redemption requests from based on any factors we may deem relevant, and the purpose of seeking such withdrawals may be to increase the funds held in the Trust Account, including where we otherwise would not satisfy the closing condition that the amount in the Trust Account and the proceeds from the PIPE Investment equal or exceed $300,000,000, following payment of the aggregate amount of cash proceeds that will be required to satisfy any redemptions and payment of all Company and Sema4 transaction expenses.
Our Initial Stockholders (as defined above), who own approximately 20% of our issued and outstanding shares of common stock, have agreed to vote their shares of common stock in favor of the Business Combination. In addition, our Initial Stockholders have agreed to waive their redemption rights with respect to such shares, which will be excluded from the pro rata calculation used to determine the per-share redemption price. Each redemption of shares of common stock by our public stockholders will reduce the amount in the Trust Account. The Merger Agreement provides that Sema4’s obligation to consummate the Business Combination is subject to the condition that the amount in the Trust Account and the proceeds from the PIPE Investment equal or exceed $300,000,000, following payment of the aggregate amount of cash proceeds that will be required to satisfy any redemptions and payment of all Company and Sema4 transaction expenses. This condition to closing in the Merger Agreement is for the sole benefit of, and may be waived only by, Sema4. If, as a result of redemptions of common stock by our public
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stockholders, this condition is not met (or waived by Sema4), then Sema4 may elect not to consummate the Business Combination. In addition, in no event will we redeem shares of our common stock in an amount that would result in the Company’s failure to have net tangible assets equaling or exceeding $5,000,001 (such that we are not subject to the SEC’s “penny stock” rules). Holders of our outstanding public warrants do not have redemption rights in connection with the Business Combination. Unless otherwise specified, the information in the accompanying proxy statement assumes that none of our public stockholders exercise their redemption rights with respect to their shares of common stock.
In connection with the Business Combination, the Company entered into the Subscription Agreements (as defined above) with the PIPE Investors, pursuant to which, among other things, the Company agreed to issue and sell to the PIPE Investors, in private placements to close immediately prior to the Closing, an aggregate of 35,000,000 shares of common stock at $10.00 per share, for an aggregate purchase price of $350,000,000.
A majority of the voting power of all outstanding shares of capital stock of the Company entitled to vote must be present in person or by proxy to constitute a quorum for the transaction of business at the Special Meeting. The Board recommends that you vote “FOR” each of these proposals.
| By Order of the Board of Directors, | |||||
| Eli Casdin | |||||
| Chief Executive Officer | |||||
| New York, New York | |||||
| [ ], 2021 | |||||
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TABLE OF CONTENTS
| Page | |||||
F-1 | |||||
i
SUMMARY TERM SHEET
This summary term sheet, together with the sections entitled “Questions and Answers About the Proposals for Stockholders” and “Summary of the Proxy Statement,” summarizes certain information contained in this proxy statement, but does not contain all of the information that is important to you. You should carefully read this entire proxy statement, including the attached Annexes, for a more complete understanding of the matters to be considered at the Special Meeting. In addition, for definitions used commonly throughout this proxy statement, including this summary term sheet, please see the section entitled “Frequently Used Terms.”
•CM Life Sciences, Inc., a Delaware corporation, which we refer to as “we,” “us,” “our,” “CMLS” or the “Company,” is a special purpose acquisition company (“SPAC”) formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
•There are currently 55,343,750 shares of Class A and Class B common stock, par value $0.0001 per share, of the Company, issued and outstanding, consisting of (i) 44,275,000 public shares, and (ii) 11,068,750 Founder Shares held by our Initial Stockholders (each share of Sema4 Class B common stock issued and outstanding immediately prior to the effective time will be converted into 1/100th of a share of Sema4 Class A common stock as set forth in the Merger Agreement). There are currently no shares of Company preferred stock issued and outstanding. In addition, we have 14,758,333 public warrants to purchase common stock (originally sold as part of the units issued in our IPO) outstanding along with 7,236,667 private placement warrants issued to our Sponsor in a private placement concurrently with our IPO (which private placement warrants will be automatically cancelled immediately prior to Closing pursuant to the Sponsor Agreement). Each warrant entitles its holder to purchase one share of our Class A common stock at an exercise price of $11.50 per whole share, to be exercised only for a whole number of shares of our Class A common stock. The warrants will become exercisable 30 days after the completion of the Business Combination, and they expire five years after the completion of the Business Combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation. Once the warrants become exercisable, the Company may redeem the outstanding public warrants at a price of $0.01 per warrant, if the last reported sales price of the Company’s Class A common stock equals or exceeds $18.00 per share for any 20 trading days within a 30 trading day period ending on the third trading day prior to the date on which we give notice of such redemption and provided certain other conditions are met. For more information regarding the public warrants, please see the section entitled “Description of Securities.”
•Sema4 is a patient-centered, health intelligence company with a mission to use artificial intelligence, or AI, and machine learning to enable personalized medicine for all. By leveraging leading data scientists and technology, the company’s platform powers remarkable and unique insights that transform the practice of medicine including how disease is diagnosed, treated, and prevented.
•Today, Sema4 has established one of the largest, most comprehensive, and fastest growing integrated health information platforms, collecting and leveraging genomic and clinical data in partnership with patients, healthcare providers and an extensive ecosystem of life science industry contributors. Sema4 is now generating and processing over 30 petabytes of data per month, growing by almost 1 petabyte per month, and maintains a database that includes more than 11.5 million de-identified clinical records, many with genomic profiles, integrated in a way that enables physicians to proactively diagnose and manage disease. This expanding database is a virtuous cycle of data: new data enables Sema4 to further develop, train, and refine predictive models and drive differentiated insights, which models and insights Sema4 deploys through its next generation diagnostic and research solutions and portals to support clinicians and researchers and engage patients, all of which interactions generate more data to continue the cycle. For more information about Sema4, please see the sections entitled “Sema4’s Business,” “Sema4’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Management after the Business Combination.”
•Subject to the terms and conditions of the Merger Agreement, each share of Sema4 Class B common stock issued and outstanding immediately prior to the effective time will be converted into 1/100th of a share of
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Sema4 Class A common stock as set forth in the Merger Agreement. Immediately thereafter, each share of Sema4 Common Stock and Sema4 Preferred Stock (other than Excluded Shares and Dissenting Shares) issued and outstanding immediately prior to the effective time will be cancelled and automatically deemed for all purposes to represent the right to receive a portion of the merger consideration, with each Sema4 Stockholder being entitled to receive (collectively, clauses (i) through (iii), the “merger consideration”) (i) its pro rata share of the Closing Available Cash if such Sema4 Stockholder has made an election to receive cash, and, if further elected, such Sema4 Stockholder’s pro rata share excess amount of any closing available excess cash, provided that in no event will a Sema4 Stockholder’s cash payment exceed an amount equal to the product of such Sema4 Stockholder’s total outstanding shares multiplied by the Per Share Amount; (ii) a number of shares of Company Class A common stock equal to the quotient of: (A)(1) the product of (x) such Sema4 Stockholder’s total outstanding shares multiplied by the Per Share Amount minus (2) such Sema4 Stockholder’s stockholder cash payment amount divided by (B) $10.00; and (iii) its earn out pro rata share of any earn out shares to which such Sema4 Stockholder is entitled pursuant to the terms of the Merger Agreement (the “Earnout”), including the Earnout RSUs, which Earnout RSUs are subject to vesting and will not be legally issued and outstanding shares of Company common stock at the closing of the Business Combination (the “Closing”), in each case of clauses (i), (ii) and (iii), without interest, upon surrender of stock certificates representing all of such Sema4 Stockholder’s Sema4 Common Stock and Sema4 Preferred Stock and delivery of the other documents required pursuant to the Merger Agreement. As of the effective time, each Sema4 Stockholder shall cease to have any other rights in and to Sema4 and each certificate relating to ownership of shares of Sema4 Common Stock and Sema4 Preferred Stock (other than Excluded Shares) will only represent the right to receive the applicable portion of the merger consideration.
Following the Closing, within five Business Days after the occurrence of a Triggering Event, the Company shall issue or cause to be issued to the Sema4 Stockholders (other than holders of Dissenting Shares) and the Earn-Out Service Providers, the following shares of Company Class A common stock (which shall be equitably adjusted for stock splits, reverse stock splits, stock dividends, reorganizations, recapitalizations, reclassifications, combination, exchange of shares or other like change or transaction with respect to Company Class A common stock occurring on or after the Closing, the “Earn-Out Shares”), upon the terms and subject to the conditions set forth in the Merger Agreement and other related agreements: (i) upon the occurrence of Triggering Event I, a one-time issuance of a number of Earn-Out Shares equal to 3.66% of the Earn-Out Total Outstanding Shares; (ii) upon the occurrence of Triggering Event II, a one-time issuance of a number of Earn-Out Shares equal to 3.67% of the Earn-Out Total Outstanding Shares; and (iii) upon the occurrence of Triggering Event III, a one-time issuance of a number of Earn-Out Shares equal to 3.67% of the Earn-Out Total Outstanding Shares. Upon the last day of any calendar year, the Company shall issue or cause to be issued to the Sema4 Stockholders (other than holders of Dissenting Shares) and the Earn-Out Service Providers the Earn-Out Shares that are in the Forfeiture Pool as in effect as of such date and that would have been issuable to Sema4 Stockholders as a result of the occurrence of a Triggering Event had they not been made subject to an award of Earnout RSUs.
Sema4 Stockholders and the Earn-Out Service Providers shall be entitled to receive Earn-Out Shares upon each Triggering Event, provided, however that each Triggering Event may only occur once, if at all, and in no event shall the Sema4 Stockholders and Earn-Out Service Providers, in the aggregate, be entitled to receive more than an aggregate number of Earn-Out Shares equal to more than 11% of the Earn-Out Total Outstanding Shares. Earn-Out Shares will be issued from the Forfeiture Pool only if the applicable Triggering event occurs.
•The PIPE Investors, including certain stockholders of Sema4, have agreed to purchase 35,000,000 shares of common stock in the aggregate, for $350,000,000 of gross proceeds. In connection with the Business Combination, the Company entered into the Subscription Agreements with the PIPE Investors, including certain stockholders of Sema4 and certain affiliates of our Sponsor, pursuant to which, among other things, the Company agreed to issue and sell to the PIPE Investors, in private placements to close immediately prior to the Closing, an aggregate of 35,000,000 shares of common stock at $10.00 per share, for an
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aggregate purchase price of $350,000,000. The PIPE Investors may assign their commitments under the Subscription Agreements to purchase shares of our common stock to one or more of our affiliates.
It is anticipated that, upon completion of the Business Combination: (i) the Company’s public stockholders (other than the PIPE Investors) will retain an ownership interest of approximately 19.3% in the post-combination company; (ii) the PIPE Investors will own approximately 12.7% (excluding certain PIPE Investors, who owned shares pre-transaction) of the post-combination company (such that public stockholders, including PIPE Investors, will own approximately 32% (adding the foregoing 2 subsets) of the post-combination company); (iii) our Initial Stockholders (including our Sponsor) will own approximately 24.2% of the post-combination company; and (iv) the former Sema4 equity holders are expected to hold, in the aggregate, approximately 63.1% of the issued and outstanding shares of Company common stock. The foregoing percentage excludes 29,367,501 options for the purchase of 29,367,501 shares of Company common stock, which are authorized and subject to stock options but will not yet be issued at closing, as further described in the pro forma capitalization table in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information — Description of the Transaction.”
Upon the effective time, each outstanding and unsettled restricted stock unit in respect of shares of Sema4 Common Stock, option to purchase Sema4 Common Stock and unvested restricted share of Sema4 Common Stock will be rolled over into restricted stock units, options, or restricted shares, respectively, of common stock in accordance with the terms of the Merger Agreement.
•The ownership percentage with respect to the post-combination company following the Business Combination does not take into account (i) warrants to purchase common stock that will remain outstanding immediately following the Business Combination, (ii) the issuance of any shares upon completion of the Business Combination under the Incentive Plan or the ESPP, copies of which are attached to this proxy statement as Annex D and Annex E, respectively or (iii) the issuance of any Earn-Out Shares. If the actual facts are different than these assumptions, the percentage ownership retained by the Company’s existing stockholders in the post-combination company will be different. For more information, please see the sections entitled “Summary of the Proxy Statement — Impact of the Business Combination on the Company’s Public Float,” “Unaudited Pro Forma Condensed Combined Financial Information,” “Proposal No. 5 — Approval of the Incentive Plan” and “Proposal No. 6 — Approval of the ESPP.”
•The Sponsor Agreement provides that, our Sponsor will vote their shares of common stock in favor of the Business Combination, be bound by certain other covenants and agreements related to the Business Combination and be bound by certain transfer restrictions with respect to their shares of common stock prior to the closing of the Business Combination.
•The Forfeiture Agreement provides that, our Sponsor, subject to certain limitations and in accordance with the terms of the agreement, forfeit up to 33% of its warrants for Class A common stock and shares of its class B common our company subject to an amount tied to the actual exercise of redemption rights by stockholders of our company in connection with the Business Combination.
•Our management and Board considered various factors in determining whether to approve the Merger Agreement and the Business Combination. For more information about our decision-making process, see the section entitled “Proposal No. 1 — Approval of the Business Combination — The Company’s Board of Directors’ Reasons for the Approval of the Business Combination.”
•Pursuant to our current certificate of incorporation, in connection with the Business Combination, holders of our public shares may elect to have their public shares redeemed for cash at the applicable redemption price per share calculated in accordance with our current certificate of incorporation. As of December 31, 2020, the estimated per share redemption price would have been approximately $10.00. If a holder exercises its redemption rights, then such holder will be exchanging its shares of our common stock for cash and will no longer own shares of the post-combination company and will not participate in the future growth of the post-combination company, if any. Such a holder will be entitled to receive cash for its public shares only if it properly demands redemption and delivers its shares (either physically or electronically) to
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our Transfer Agent, Continental Stock Transfer & Trust Company, at least two business days prior to the Special Meeting. Please see the section entitled “Special Meeting of Company Stockholders — Redemption Rights.”
•In addition to voting on the proposal to adopt the Merger Agreement and approve the transactions contemplated thereunder, including the Business Combination, at the Special Meeting, the stockholders of the Company will be asked to vote on:
Proposal No. 2 — The Nasdaq Stock Issuance Proposal — To approve, for purposes of complying with applicable listing rules of Nasdaq, the issuance of more than 20% of the Company’s outstanding common stock in connection with the Business Combination and the Subscription Agreements, including up to 35,000,000 shares of our common stock to the PIPE Investors;
Proposal No. 3 — The Charter Approval Proposal — To adopt the proposed Amended and Restated Certificate of Incorporation of the Company in the form attached hereto as Annex B;
Proposal No. 4 — Governance Proposal — To approve, on a non-binding advisory basis, a separate proposal with respect to certain governance provisions in the Amended and Restated Certificate of Incorporation in accordance with SEC requirements;
Proposal No. 5 — Incentive Plan Proposal — To approve the Incentive Plan, including the authorization of the initial share reserve under the Incentive Plan;
Proposal No. 6 — ESPP Proposal — To approve the ESPP, including the authorization of the initial share reserve under the ESPP;
Proposal No. 7 — The Director Election Proposal — To consider and vote upon a proposal to elect [ ] directors to serve on the post-combination company’s board of directors, each for a term expiring at the 2024 annual meeting of stockholders or until such director’s successor has been duly elected and qualified, or until such director’s earlier death, resignation, retirement or removal; alternatively, in the event the condition precedent proposals, including the Charter Approval Proposal, are not approved, to elect two directors as Class I directors on the Company’s board of directors, each to serve for a term of three years expiring at the annual meeting of stockholders to be held in 2024 or until such director’s successor has been duly elected and qualified, or until such director’s earlier death, resignation, retirement or removal; and
Proposal No. 8 — Adjournment Proposal — To approve, if necessary, the adjournment of the Special Meeting to a later date or dates to permit further solicitation and votes of proxies in the event that there are insufficient votes for, or otherwise in connection with, the approval of the Business Combination Proposal, the Nasdaq Stock Issuance Proposal, the Charter Approval Proposal, the Incentive Plan Proposal or the ESPP Proposal. This proposal will only be presented at the Special Meeting if there are not sufficient votes to approve the Business Combination Proposal, the Nasdaq Stock Issuance Proposal, the Charter Approval Proposal, the Incentive Plan Proposal or the ESPP Proposal.
Proposal No. 9 — Auditor Ratification Proposal --- The ratification of Withum as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020.
•Please see the sections entitled “Proposal No. 1 — Approval of the Business Combination,” “Proposal No. 2 — The Nasdaq Stock Issuance Proposal,” “Proposal No. 3 — The Charter Approval Proposal,” “Proposal No. 4 — Approval of Certain Governance Provisions in the Amended and Restated Certificate of Incorporation,” “Proposal No. 5 — Approval of the Incentive Plan,” “Proposal No. 6 — Approval of the ESPP,” “Proposal No. 7 – The Director Election Proposal,” “Proposal No. 8 — The Adjournment Proposal,” and “Proposal No. 9 --- The Auditor Ratification Proposal” Proposals in this proxy statement (other than the Governance Proposal, the Auditor Ratification Proposal and the Adjournment Proposal) are conditioned on the approval of the Business Combination Proposal.
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•The Merger Agreement may be terminated at any time prior to the consummation of the Business Combination upon agreement of the parties thereto, or by the Company or Sema4 in specified circumstances. For more information about the termination rights under the Merger Agreement, please see the section entitled “Proposal No. 1 — Approval of the Business Combination — The Merger Agreement — Termination.”
•The proposed Business Combination involves numerous risks. For more information about these risks, please see the section entitled “Risk Factors.”
•In considering the recommendation of our Board to vote in favor of the Business Combination, stockholders should be aware that aside from their interests as stockholders, our Sponsor and its affiliates and certain members of our Board and officers have interests in the Business Combination that are different from, or in addition to, those of other stockholders generally. Our Board was aware of and considered these interests, among other matters, in evaluating and negotiating the Business Combination, and in recommending to stockholders that they approve the Business Combination. Stockholders should take these interests into account in deciding whether to approve the Business Combination. These interests include, among other things:
•the fact that our Initial Stockholders have agreed not to redeem any of the Founder Shares in connection with a stockholder vote to approve the Business Combination;
•the fact that our Sponsor will retain 11,068,750 Founder Shares upon the Closing;
•the fact that our Initial Stockholders have agreed to waive their rights to liquidating distributions from the Trust Account with respect to their Founder Shares if we fail to complete an initial business combination by the applicable deadline;
•if the Trust Account is liquidated, including in the event we are unable to complete an initial business combination within the required time period, our Sponsor has agreed to indemnify us to ensure that the proceeds in the Trust Account are not reduced below $10.00 per public share, or such lesser per public share amount as is in the Trust Account on the liquidation date, by the claims of prospective target businesses with which we have entered into an acquisition agreement or claims of any third party (other than our independent public accountants) for services rendered or products sold to us, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the Trust Account;
•the continued indemnification of our existing directors and officers and the continuation of our directors’ and officers’ liability insurance after the Business Combination;
•the fact that Joshua Ruch, Michael Pellini and Rachel Sherman may join as board members of the post-combination company (dependent on the approval of the Director Election Proposal) and Nat Turner, Emily Leproust and Eli Casdin will continue as board members of the post-combination company, and each shall be entitled to receive compensation for serving on the board of directors of the post-combination company;
•the fact that our Sponsor, officers and directors will lose their entire investment in us and will not be reimbursed for any out-of-pocket expenses if an initial business combination is not consummated by the applicable deadline;
•that Corvex Master Fund LP, Corvex Select Equity Master Fund LP, Corvex Dynamic Equity Select Master Fund LP, and JS Capital LP, funds that are advised by an affiliate of the Sponsor, have entered into Subscription Agreements with the Company, pursuant to which such affiliates have committed to purchase 240,000; 3,696,000; 64,000; and 500,000 shares of common stock in the PIPE Investment, respectively, for an aggregate commitment of approximately $2,400,000; $36,960,000; $640,000; $5,000,000, respectively; and
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•that Casdin Partners Master Fund, L.P., a fund that is advised by an affiliate of the Sponsor, has entered into a Subscription Agreement with the Company, pursuant to which the affiliate has committed to purchase 5,000,000 shares of common stock in the PIPE Investment for an aggregate commitment of approximately $50,000,000.
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FREQUENTLY USED TERMS
Unless otherwise stated or unless the context otherwise requires, the terms “we,” “us,” “our,” the “Company” and “CMLS” refer to CM Life Sciences, Inc., a Delaware corporation, and the term “post-combination company” refers to the company following the consummation of the Business Combination. In this proxy statement:
“Aggregate Sema4 Share Amount” shall mean the sum, without duplication, of (a) the aggregate number of shares of Sema4 Common Stock that are issued and outstanding immediately prior to the effective time, (b) the aggregate number of shares of Sema4 Common Stock that are issuable upon the exercise of Sema4 Options or vesting of Sema4 RSUs or other direct or indirect rights to acquire shares of Sema4 Common Stock that are issued and outstanding immediately prior to the effective time (and in the case of Sema4 SARs, the aggregate number of shares of Sema4 Common Stock on which the value of such Sema4 SARs is based), in each case calculated on a treasury stock basis and after giving effect to the conversion of the Class B common stock pursuant to the mandatory conversion notice under the organizational documents of Sema4, and (c) the aggregate number of shares of Sema4 Common Stock that would be issuable upon the conversion all shares of Sema4 Preferred Stock into shares of Sema4 Common Stock pursuant to the organizational documents of Sema4; provided that, for the avoidance of doubt, the Earnout RSUs shall be disregarded for the purpose of the Aggregate Sema4 Share Amount.
“Amended and Restated Certificate of Incorporation” means the proposed Amended and Restated Certificate of Incorporation of the Company, a form of which is attached hereto as Annex B, which will become the post-combination company’s certificate of incorporation upon the approval of the Charter Approval Proposal, assuming the consummation of the Business Combination.
“applicable deadline” means November 9, 2021.
“Board” or “Board of Directors” means the board of directors of the Company.
“Business Combination” means the transactions contemplated by the Merger Agreement, including the Merger.
“Class A common stock” means the shares of Class A common stock, par value $0.0001 per share, of the Company.
“Class B common stock” means the shares of Class B common stock, par value $0.0001 per share, of the Company.
“Closing” means the closing of the Business Combination.
“Code” means the Internal Revenue Code of 1986, as amended.
“Common Share Price” shall mean the share price equal to the VWAP of one share of Company common stock as reported on Nasdaq (or the exchange on which the shares of Company common stock are then listed) for a period of at least 20 days out of 30 consecutive trading days ending on the trading day immediately prior to the date of determination (as adjusted as appropriate to reflect any stock splits, reverse stock splits, stock dividends (including any dividend or distribution of securities convertible into Company common stock), extraordinary cash dividend (which adjustment shall be subject to the reasonable mutual agreement of Company and Sema4), reorganization, recapitalization, reclassification, combination, exchange of shares or other like change or transaction with respect to Company common stock).
“common stock” or “Company common stock” means (i) prior to the consummation of the Business Combination, the shares of Class A common stock and Class B common stock of the Company and (ii) upon the consummation of the Business Combination and the automatic conversion of the shares of Class B common stock into shares of Class A common stock, the shares of Class A common stock of the Company.
“Company” means CM Life Sciences, Inc., a Delaware corporation.
“current certificate of incorporation” means our sixth amended and restated certificate of incorporation, dated as of July 27, 2020.
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“D.F. King” means D.F. King & Co., Inc., proxy solicitor to the Company.
“DGCL” means the General Corporation Law of the State of Delaware.
“Earnout Condition” means the condition in the Merger Agreement specifying that the Sema4 Stockholders (other than holders of Dissenting Shares) and Earn-Out Service Providers will receive the following Earn-Out shares (i) upon the occurrence of Triggering Event I, a one-time issuance of a number of Earn-Out Shares equal to 3.66% of the Earn-Out Total Outstanding Shares; (ii) upon the occurrence of Triggering Event II, a one-time issuance of a number of Earn-Out Shares equal to 3.67% of the Earn-Out Total Outstanding Shares; (iii) upon the occurrence of Triggering Event III, a one-time issuance of a number of Earn-Out Shares equal to 3.67% of the Earn-Out Total Outstanding Shares; and (iv) upon the last day of any calendar year, a one-time issuance of the Earn-Out Shares in the Forfeiture Pool as in effect as of such date that would have been issuable to Sema4 Stockholders as a result of the occurrence of a Triggering Event had they not been subject to an award of Earnout RSUs.
“Earn-Out Total Outstanding Shares” means the aggregate number of shares of Company common stock to which holders of Sema4 Common Stock and Sema4 Preferred Stock would be entitled under Section 2.7(a)(ii) of the Merger Agreement if none made a Cash Election and the Closing Cash Payment was $0 (as each such term is defined in the Merger Agreement.
“Earn-Out Period” shall mean the time period beginning upon the expiration of the Founder Shares Lock-Up Period (as such term is defined in and pursuant to the terms of that certain Letter Agreement, dated September 1, 2020, entered into by and among the Company, Sponsor and certain of the Company’s current and former officers and directors) and ending on the 2-year anniversary of the Closing Date (as defined herein).
“Earn-Out Service Provider” shall mean each (a) holder of a Company Option, Company RSU, Company SAR, other than any holder of a Company Option, Company RSU or Company SAR who is not employed by or providing services to the Company as of the Effective Time (as defined herein), and (b) each other employee or individual service provider of the Company, in each case whom the board of directors of the Company designates as an Earn-Out Service Provider prior to the Closing and who enters into an Earn-Out Award Agreement.
“Earn-Out Shares” means the shares of Company Class A common stock that the Company shall issue or cause to be issued to the Sema4 Stockholders (other than holders of Dissenting Shares) and the Earn-Out Service Providers, which shall be equitably adjusted for stock splits, reverse stock splits, stock dividends, reorganizations, recapitalizations, reclassifications, combination, exchange of shares or other like change or transaction with respect to Company Class A common stock occurring on or after the Closing.
“ESPP” means the [ ] 2021 Employee Stock Purchase Plan.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Founder Shares” means the 11,068,750 shares of Class B common stock that are currently owned by our Initial Stockholders, of which 10,993,750 shares are held by our Sponsor, 25,000 shares are held by Mr. Islam, 25,000 shares are held by Dr. Leproust and 25,000 shares are held by Mr. Turner, which shares of Class B common stock will automatically convert into Class A common stock in connection with the consummation of the Business Combination.
“GAAP” means United States generally accepted accounting principles.
“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
“Incentive Plan” means the [ ] 2021 Equity Incentive Plan.
“Initial Stockholders” means our Sponsor together with Mr. Islam, Dr. Leproust and Mr. Turner.
“Investment Company Act” means the Investment Company Act of 1940, as amended.
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“IPO” means the Company’s initial public offering, consummated on September 4, 2020, of 44,275,000 units (including 5,775,000 units that were subsequently issued to the underwriters in connection with the partial exercise of their over-allotment option) at $10.00 per unit.
“JOBS Act” means the Jumpstart Our Business Startups Act of 2012.
“leader,” “leading,” “industry-leading,” and other similar statements included in this proxy statement and, in particular, in the sections entitled “Summary Term Sheet,” “Summary of the Proxy Statement,” “Proposal No. 1 — Approval of the Business Combination,” “Sema4’s Business” and “Sema4’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding Sema4 and its products and services are based on Sema4’s belief in its competitive advantages in data, analytics and patient and provider engagement, in particular with respect to Sema4’s diagnostic solutions and genomic platform. Sema4 bases its beliefs regarding these matters, including its estimates of its market share in its sector, on its collective institutional knowledge and expertise regarding its industries, markets and technology, which are based on, among other things, publicly available information, reports of government agencies, RFPs and the results of contract bids and awards, and industry research firms, as well as Sema4’s internal research, calculations and assumptions based on its analysis of such information and data. Sema4 believes these assertions to be reasonable and accurate as of the date of this proxy statement.
“Merger Agreement” means that certain Agreement and Plan of Merger, dated as of February 9, 2021, by and among the Company, Merger Sub and Sema4 as amended by the Amendment to Agreement and Plan of Merger dated May 3, 2021 by and among the Company, Merger Sub and Sema4.
“Merger” means the merger of Merger Sub with and into Sema4, with Sema4 continuing as the surviving company.
“Merger Sub” means S-IV Sub, Inc.
“Nasdaq” means the Nasdaq Stock Market.
“NYSE” means the New York Stock Exchange LLC.
“Per Share Amount” shall mean the quotient, rounded to the nearest one-tenth of a cent, obtained by dividing (a) the $2,000,000,000.00 by (b) the Aggregate Sema4 Share Amount.
“PIPE Investment” means the private placement pursuant to which the PIPE Investors have collectively subscribed for 35,000,000 shares of common stock at $10.00 per share, for an aggregate purchase price of $350,000,000.
“PIPE Investors” means certain institutional investors that will invest in the PIPE Investment.
“PIPE Shares” means the 35,000,000 shares of common stock to be issued in the PIPE Investment.
“private placement warrants” means the warrants held by our Sponsor that were issued to our Sponsor in connection with our IPO, each of which is exercisable for three-quarters of one share of common stock, in accordance with its terms.
“public shares” means shares of common stock included in the units issued in our IPO.
“public stockholders” means holders of public shares, including our Initial Stockholders to the extent our Initial Stockholders hold public shares; provided, that our Initial Stockholders are considered a “public stockholder” only with respect to any public shares held by them.
“public units” means the units sold in our IPO, consisting of one share of common stock and one public warrant of the Company.
“public warrants” means the warrants included in the public units issued in our IPO, each of which is exercisable for three-quarters of one share of common stock, in accordance with its terms.
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“Related Agreements” means, collectively, the Amended and Restated Registration Rights Agreement, the Sponsor Support Agreement, the Forfeiture Agreement, the Stockholder Lock-up Letter, the ISMMS Lock-Up Agreement, the Inside Letter, and the Subscription Agreements.
“RSUs” means restricted stock units granted under the Incentive Plan in accordance with the terms of the Merger Agreement.
“SAR Exchange Ratio” shall mean the quotient, rounded to the nearest one ten-thousandth, of (i) the Per Share Amount divided by (ii) $10.00.
“SEC” means the United States Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended.
“Sema4” means Mount Sinai Genomics, Inc. d/b/a Sema4, a Delaware corporation.
“Sema4 capital stock” means Sema4 Class A common stock, par value $0.00001 per share, Class B common stock, par value $0.00001 per share, Series A-1 preferred stock, par value $0.00001 per share, series A-2 preferred stock, $0.00001 per share, series B preferred stock, $0.00001 per share, and series C preferred stock, $0.00001 per share in each case, that is issued and outstanding immediately prior to the Closing.
“Sema4 Common Stock” shall mean the Class A common stock (after giving effect to the conversion of the Class B common stock pursuant to a mandatory conversion notice under the organizational documents of Sema4).
“Sema4 equity holder” means each holder of Sema4 capital stock or a vested equity award.
“Sema4 Incentive Plan” means the Sema4 2017 Stock Incentive Plan, as amended from time to time.
“Sema4 Option” shall mean an option to purchase shares of Class A common stock or Class B common stock granted under the Sema4 Incentive Plan.
“Sema4 Preferred Stock” means Sema4’s Series A-1 Preferred Stock, par value $0.00001; Series A-2 Preferred Stock, par value $0.00001; Series B Preferred Stock, par value $0.00001; and Series C Preferred Stock, par value $0.00001.
“Sema4 RSU” shall mean a restricted stock unit representing the opportunity to acquire shares of Class B common stock granted under the Sema4 Incentive Plan.
“Sema4 SAR” shall mean a stock appreciation right with respect to shares of Sema4 Common Stock granted under the Sema4 Incentive Plan.
“SOX” means the Sarbanes-Oxley Act of 2002.
“Special Meeting” means the special meeting of the stockholders of the Company that is the subject of this proxy statement.
“Sponsor” means CMLS Holdings LLC, a Delaware limited liability company.
“Stock Consideration” means the common stock to be issued to the Sema4 equity holders pursuant to the transactions contemplated by the Merger Agreement, including any Earn-Out Shares issuable pursuant to Article III thereof.
“Subscription Agreements” means, collectively, those certain subscription agreements entered into on February 9, 2021, between the Company and certain investors, including our Sponsor, pursuant to which such investors have agreed to purchase an aggregate of 35,000,000 shares of common stock in the PIPE Investment, and substantially in the form attached hereto as Annex C.
“Transfer Agent” means Continental Stock Transfer & Trust Company.
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“Triggering Event I” shall occur if, within the Earn-Out Period, the Common Share Price is greater than or equal to $13.00 per share.
“Triggering Event II” shall occur if, within the Earn-Out Period, the Common Share Price is greater than or equal to $15.00 per share.
“Triggering Event III” shall occur if, within the Earn-Out Period, the Common Share Price is greater than or equal to $18.00 per share.
“Triggering Events” shall mean Triggering Event I, Triggering Event II and Triggering Event III, collectively.
“Trust Account” means the trust account of the Company that holds the proceeds from the Company’s IPO and a portion of the proceeds from the sale of the private placement warrants.
“VWAP” means, for any security as of any date(s), the dollar volume-weighted average price for such security on the principal securities exchange or securities market on which such security is then traded during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its “HP” function (set to weighted average) or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported by OTC Markets Group Inc. If the VWAP cannot be calculated for such security on such date(s) on any of the foregoing bases, the VWAP of such security on such date(s) shall be the fair market value per share on such date(s) as reasonably determined by the Company.
“Withum” means WithumSmith+Brown, PC, the Company’s independent registered public accounting firm.
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QUESTIONS AND ANSWERS ABOUT THE PROPOSALS FOR STOCKHOLDERS
The questions and answers below highlight only selected information from this document and only briefly address some commonly asked questions about the proposals to be presented at the Special Meeting, including with respect to the proposed Business Combination. The following questions and answers do not include all the information that is important to our stockholders. We urge stockholders to carefully read this entire proxy statement, including the Annexes and the other documents referred to herein, to fully understand the proposed Business Combination and the voting procedures for the Special Meeting, which will be held on [ ] , 2021 at [ ] Eastern time.
Q: Why am I receiving this proxy statement?
A: Our stockholders are being asked to consider and vote upon a proposal to adopt the Merger Agreement and approve the transactions contemplated thereby, including the Business Combination, among other proposals. We have entered into the Merger Agreement, pursuant to which the Company’s wholly owned subsidiary will merge with and into Sema4, with Sema4 surviving the merger as a wholly owned subsidiary of the Company. Subject to the terms of the Merger Agreement, at the effective time of the Business Combination, each share of Sema4 capital stock issued and outstanding immediately prior to the effective time of the Business Combination (other than shares owned by Sema4 as treasury stock or dissenting shares) will be cancelled and automatically deemed for all purposes to represent the right to receive a portion of the merger consideration set forth in the Merger Agreement. A copy of the Merger Agreement is attached to this proxy statement as Annex A.
This proxy statement and its Annexes contain important information about the proposed Business Combination and the other matters to be acted upon at the Special Meeting. You should read this proxy statement and its Annexes carefully and in their entirety.
Your vote is important. You are encouraged to submit your proxy as soon as possible after carefully reviewing this proxy statement and its Annexes.
Q: When is the Special Meeting?
A: The Special Meeting will be held on [ ] , 2021 at [ ] Eastern time. In light of ongoing developments related to coronavirus (COVID-19), after careful consideration, the Company has determined that the Special Meeting will be a virtual meeting conducted exclusively via live webcast in order to facilitate stockholder attendance and participation while safeguarding the health and safety of our stockholders, directors and management team. You or your proxyholder will be able to attend the virtual Special Meeting online, vote, view the list of stockholders entitled to vote at the special meeting and submit questions during the Special Meeting by visiting https://www.cstproxy.com/CMLS/sm2021 and using a control number assigned by Continental Stock Transfer & Trust Company. To register and receive access to the virtual meeting, registered stockholders and beneficial stockholders (those holding shares through a stock brokerage account or by a bank or other holder of record) will need to follow the instructions applicable to them provided in the proxy statement. Because the special meeting is completely virtual and being conducted via live webcast, stockholders will not be able to attend the meeting in person.
Q: How can I attend and vote at the Special Meeting?
Any stockholder wishing to attend the virtual meeting should register for the meeting by [ ], 2021. To register for the Special Meeting, please follow these instructions as applicable to the nature of your ownership of our common stock:
•If your shares are registered in your name with Continental Stock Transfer & Trust Company and you wish to attend the Special Meeting, go to https://www.cstproxy.com/CMLS/sm2021, enter the 12-digit control number included on your proxy card or notice of the meeting and click on the “Click here to preregister for the online meeting” link at the top of the page. Just prior to the start of the meeting you will need to log back into the meeting site using your control number. Pre-registration is recommended but is not required in order to attend.
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•Beneficial stockholders (those holding shares through a stock brokerage account or by a bank or other holder of record) who wish to attend the Special Meeting must obtain a legal proxy by contacting their account representative at the bank, broker, or other nominee that holds their shares and e-mail a copy (a legible photograph is sufficient) of their legal proxy to proxy@continentalstock.com. Beneficial stockholders who e-mail a valid legal proxy will be issued a 12-digit meeting control number that will allow them to register to attend and participate in the Special Meeting. After contacting Continental Stock Transfer & Trust Company, a beneficial holder will receive an e-mail prior to the meeting with a link and instructions for entering the virtual meeting. Beneficial stockholders should contact Continental Stock Transfer & Trust Company at least five (5) business days prior to the meeting date in order to ensure access.
Q: What are the specific proposals on which I am being asked to vote on at the Special Meeting?
A: You are being asked to consider and vote on proposals to:
1.Proposal No. 1 — The Business Combination Proposal — To approve and adopt the Merger Agreement, a copy of which is attached to this proxy statement as Annex A, and approve the transactions contemplated thereby, including the merger of Merger Sub with and into Sema4, with Sema4 surviving the merger as a wholly owned subsidiary of the Company, and the issuance of common stock to Sema4 equity holders as merger consideration;
2.Proposal No. 2 — The Nasdaq Stock Issuance Proposal — To approve, for purposes of complying with applicable listing rules of Nasdaq, the issuance of more than 20% of the Company’s outstanding common stock in connection with the Business Combination and the Subscription Agreements, including up to 35,000,000 shares of our common stock to the PIPE;
3.Proposal No. 3 — The Charter Approval Proposal— To adopt the proposed Amended and Restated Certificate of Incorporation in the form attached hereto as Annex B;
4.Proposal No. 4 — Governance Proposal— To approve, on a non-binding advisory basis, a separate proposal with respect to certain governance provisions in the Amended and Restated Certificate of Incorporation in accordance with SEC requirements;
5.Proposal No. 5 — Incentive Plan Proposal — To approve the Incentive Plan, including the authorization of the initial share reserve under the Incentive Plan;
6.Proposal No. 6 — ESPP Proposal — To approve the ESPP, including the authorization of the initial share reserve under the ESPP;
7.Proposal No. 7 — The Director Election Proposal — To consider and vote upon the Director Election Proposal; and
8.Proposal No. 8 — Adjournment Proposal — To approve, if necessary, the adjournment of the Special Meeting to a later date or dates to permit further solicitation and votes of proxies in the event that there are insufficient votes for, or otherwise in connection with, the approval of the Business Combination Proposal, the Nasdaq Stock Issuance Proposal, the Charter Approval Proposal, the Incentive Plan Proposal or the ESPP Proposal. This proposal will only be presented at the Special Meeting if there are not sufficient votes to approve the Business Combination Proposal, the Nasdaq Stock Issuance Proposal, the Charter Approval Proposal, the Incentive Plan Proposal or the ESPP Proposal.
9.Proposal No. 9 -— Auditor Ratification Proposal — The ratification of Withum as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020.
Q: Are the proposals conditioned on one another?
A: Yes. Under the Business Combination Agreement, the approval of the condition precedent proposals presented at the Special Meeting is a condition to the consummation of the Business Combination. The adoption
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of each condition precedent proposal in this proxy statement (other than the Governance Proposal, the Auditor Ratification Proposal and the Adjournment Proposal) is conditioned on the approval of all of the condition precedent proposals. The election of the directors to a one-year term in the Director Election Proposal is conditioned on the approval of the condition precedent proposals, including the Charter Approval Proposal. If our stockholders do not approve of each of the condition precedent proposals, the Business Combination may not be consummated. Therefore, approval of the Nasdaq Stock Issuance Proposal, the Charter Approval Proposal, the Incentive Plan Proposal and the ESPP Proposal are conditioned upon stockholders’ approval of the Business Combination Proposal. Moreover, the transactions contemplated by the Merger Agreement will be consummated only if the Business Combination Proposal, the Nasdaq Stock Issuance Proposal, the Charter Approval Proposal, the Incentive Plan Proposal and ESPP Proposal are approved at the Special Meeting.
It is important for you to note that in the event that the Business Combination Proposal, the Nasdaq Stock Issuance Proposal, the Charter Approval Proposal or the Incentive Plan Proposal do not receive the requisite vote for approval, we will not consummate the Business Combination. If we do not consummate the Business Combination and fail to complete an initial business combination by the applicable deadline, we will be required to dissolve and liquidate our Trust Account by returning the then remaining funds in such account to the public stockholders.
Q: Why is the Company providing stockholders with the opportunity to vote on the Business Combination?
A: Under our current certificate of incorporation, we must provide all holders of public shares with the opportunity to have their public shares redeemed upon the consummation of our initial business combination either in conjunction with a tender offer or in conjunction with a stockholder vote. For business and other reasons, we have elected to provide our stockholders with the opportunity to have their public shares redeemed in connection with a stockholder vote, rather than a tender offer. Therefore, we are seeking to obtain the approval of our stockholders of the Business Combination Proposal in order to allow our public stockholders to effectuate redemptions of their public shares in connection with the Closing. The adoption of the Merger Agreement is required under Delaware law and the approval of the Business Combination is required under our current certificate of incorporation. In addition, such approval is also a condition to the Closing under the Merger Agreement.
Q: What will happen in the Business Combination?
A: Pursuant to the Merger Agreement, Sema4 will become a wholly-owned subsidiary of the Company as a result of the Company’s wholly owned subsidiary, Merger Sub merger with and into Sema4, with Sema4 surviving the merger as a wholly owned subsidiary of the Company.
Q: Following the Business Combination, will the Company’s securities continue to trade on a stock exchange?
A: Yes. We intend to apply to list the post-combination company’s common stock and warrants on Nasdaq under the symbol “SMFR” and “SMFRW,” respectively, upon the Closing. Our units will automatically separate into the component securities upon consummation of the Business Combination and, as a result, will no longer trade as a separate security.
Q: How has the announcement of the Business Combination affected the trading price of the Company’s common stock?
A: On February 9, 2021, the trading date before the public announcement of the Business Combination, the Company’s units, common stock and warrants closed at $16.96, $15.52 and $4.70, respectively. On May 5, 2021, the trading date immediately prior to the date of this proxy statement, the Company’s units, common stock and warrants closed at $13.65, $12.59 and $3.75, respectively.
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Q: How will the Business Combination impact the shares of the Company outstanding after the Business Combination?
A: After the Business Combination and the consummation of the transactions contemplated thereby, including the PIPE Investment, the amount of common stock issued and outstanding will increase to approximately 228,865,552 shares of common stock (excluding warrants and assuming that no shares of common stock are redeemed). Additional shares of common stock may be issuable in the future as a result of the issuance of additional shares that are not currently outstanding, including the issuance of shares of common stock upon exercise or settlement of the public warrants, private placement warrants, options and RSUs issued in connection with the Business Combination after the Business Combination. The issuance and sale of such shares in the public market could adversely impact the market price of our common stock, even if our business is doing well.
Q: Is the Business Combination the first step in a “going private” transaction?
A: No. The Company does not intend for the Business Combination to be the first step in a “going private” transaction. One of the primary purposes of the Business Combination is to provide a platform for Sema4 to access the U.S. public markets.
Q: Will the management of Sema4 change in the Business Combination?
A: We anticipate that all of the executive officers of Sema4 will remain with the post-combination company. The current directors of the Company will resign at the time of the Business Combination, other than Nat Turner, Emily Leproust and Eli Casdin, who have been nominated by the CMLS to serve as directors of the post-combination company upon completion of the Business Combination. The remaining director nominees will be designated by the Company in accordance with the terms of the Merger Agreement. Please see the sections entitled “Management After the Business Combination” and “Proposal No. 7 — The Director Election Proposal” for additional information.
Q: What equity stake will current stockholders of the Company, PIPE Investors and the Sema4 equity holders hold in the post-combination company after the Closing?
A: It is anticipated that, upon completion of the Business Combination, assuming no redemptions: (i) the Company’s public stockholders (other than the PIPE Investors) will retain an ownership interest of approximately 19.3% in the post-combination company; (ii) the PIPE Investors will own approximately 12.7% (excluding certain PIPE Investors, who owned shares pre-transaction) of the post-combination company (such that public stockholders, including PIPE Investors, will own approximately 32% (adding the foregoing 2 subsets) of the post-combination company); (iii) our Initial Stockholders (including our Sponsor) will own approximately 24.2% of the post-combination company; and (iv) the former Sema4 equity holders are expected to hold, in the aggregate, approximately 63.1% of the issued and outstanding shares of Company common stock. The foregoing percentage excludes 29,367,501 options for the purchase of 29,367,501 shares of Company common stock, which are authorized and subject to stock options but will not yet be issued at closing, as further described in the pro forma capitalization table in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information — Description of the Transaction.”
The ownership percentage with respect to the post-combination company following the Business Combination does not take into account (i) warrants to purchase common stock that will remain outstanding immediately following the Business Combination, (ii) the issuance of any shares upon completion of the Business Combination under the Incentive Plan or the ESPP, copies of which are attached to this proxy statement as Annex D and Annex E, respectively and (iii) the issuance of Earn-Out Shares. If the actual facts are different than these assumptions, the percentage ownership retained by the Company’s existing stockholders in the post-combination company will be different. For more information, please see the sections entitled “Summary of the Proxy Statement — Impact of the Business Combination on the Company’s Public Float,” “Unaudited Pro Forma Condensed Combined Financial Information,” “Proposal No. 5 — Approval of the Incentive Plan” and “Proposal No. 6 — Approval of the ESPP.”
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Q: Will the Company obtain new financing in connection with the Business Combination?
A: Yes. The PIPE Investors have agreed to purchase 35,000,000 shares of common stock in the aggregate, for $350,000,000 of gross proceeds, pursuant to the Subscription Agreements. The Subscription Agreements are contingent upon, among other things, stockholder approval of the Business Combination Proposal and the Closing. See “Proposal No. 1 — Approval of the Business Combination — Related Agreements — Subscription Agreements.” The Company does not currently anticipate obtaining any new debt financing to fund the Business Combination.
Q: What conditions must be satisfied to complete the Business Combination?
A: There are a number of closing conditions in the Merger Agreement, including the approval by the stockholders of the Company of the Business Combination Proposal, the Nasdaq Stock Issuance Proposal, the Charter Approval Proposal, the Incentive Plan Proposal and the ESPP Proposal. For a summary of the conditions that must be satisfied or waived prior to completion of the Business Combination, please see the section entitled “Proposal No. 1 — Approval of the Business Combination — The Merger Agreement.”
Q: Are there any arrangements to help ensure that the Company will have sufficient funds, together with the proceeds in its Trust Account and from the PIPE Investment, to fund the aggregate purchase price?
A: Unless waived by Sema4, the Merger Agreement provides that Sema4’s obligation to consummate the Business Combination is conditioned on the funds in the Trust Account, together with the funding of any amounts payable under the Subscription Agreements, being equal to no less than an aggregate amount of $300,000,000 after payment of redemptions and Company and Sema4 transaction expenses. The PIPE Investors have agreed to purchase approximately 35,000,000 shares of common stock at $10.00 per share for gross proceeds to the Company of approximately $350,000,000 pursuant to Subscription Agreements entered into at the signing of the Merger Agreement. The PIPE Investment is contingent upon, among other things, stockholder approval of the Business Combination Proposal and the Closing.
The Company will use the proceeds of the PIPE Investment, together with the funds in the Trust Account, to pay certain fees, costs and expenses (including regulatory fees, legal fees, accounting fees, printer fees and other professional fees) that were incurred by the Company and other parties to the Merger Agreement in connection with the transactions contemplated by the Merger Agreement, including the Business Combination, and pursuant to the terms of the Merger Agreement.
Q: Why is the Company proposing the Nasdaq Stock Issuance Proposal?
A: We are proposing the Nasdaq Stock Issuance Proposal in order to comply with Nasdaq Listing Rule s 5635(a) and (d), which require stockholder approval of certain transactions that result in the issuance of 20% or more of the outstanding voting power or shares of common stock outstanding before the issuance of stock or securities.
In connection with the Business Combination, we expect to issue (i) up to 138,521,802 shares of common stock in the Business Combination, and (ii) approximately 35,000,000 shares of common stock in the PIPE Investment. Because we may issue 20% or more of our outstanding common stock when considering together the Stock Consideration and the PIPE Investment, we are required to obtain stockholder approval of such issuance pursuant to Nasdaq Listing Rule s 5635(a) and (d). For more information, please see the section entitled “Proposal No. 2 — The Nasdaq Stock Issuance Proposal.”
Q: Why is the Company proposing the Charter Approval Proposal?
A: The Amended and Restated Certificate of Incorporation that we are asking our stockholders to adopt in connection with the Business Combination (the “Charter Approval Proposal” or “Proposal No. 3”) provides for certain amendments to our existing certificate of incorporation. Pursuant to Delaware law and the Merger Agreement, we are required to submit the Charter Approval Proposal to the Company’s stockholders for
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adoption. For additional information please see the section entitled “Proposal No. 3 — The Charter Approval Proposal.”
Q: Why is the Company proposing the Governance Proposal?
A: As required by applicable SEC guidance, the Company is requesting that its stockholders vote upon, on a non-binding advisory basis, a proposal to approve certain governance provisions contained in the Amended and Restated Certificate of Incorporation that materially affect stockholder rights. This separate vote is not otherwise required by Delaware law separate and apart from the Charter Approval Proposal (Proposal No. 3), but pursuant to SEC guidance, the Company is required to submit these provisions to its stockholders separately for approval. However, the stockholder vote regarding this proposal is an advisory vote, and is not binding on the Company or its board of directors. Furthermore, the Business Combination is not conditioned on the separate approval of the Governance Proposal. For additional information, please see the section entitled “Proposal No. 4 — Approval of Certain Governance Provisions in the Amended and Restated Certificate of Incorporation.”
Q: Why is the Company proposing the Incentive Plan Proposal?
A: The purpose of the Incentive Plan Proposal is to further align the interests of the eligible participants with those of stockholders by providing long- term incentive compensation opportunities tied to the performance of the Company. Please see the section entitled “Proposal No. 5 — Approval of the Incentive Plan” for additional information.
Q: Why is the Company proposing the ESPP Proposal?
A: The purpose of the ESPP Proposal is to provide eligible employees with an opportunity to increase their proprietary interest in the success of the Company by purchasing common stock on favorable terms and to pay for such purchases through payroll deductions. The Company believes by providing eligible employees with an opportunity to increase their proprietary interest in the success of the Company, the ESPP will motivate participants to offer their maximum effort to the Company and help focus them on the creation of long-term value consistent with the interests of the Company’s stockholders. For more information about the ESPP, please see the section entitled “Proposal No. 6 — Approval of the ESPP”.
Q: Why is the Company proposing the Director Election Proposal?
A: Assuming the condition precedent proposals, including the Charter Approval Proposal, are approved, upon the Closing, our stockholders are being asked to elect [ ] directors to serve on the post-combination company’s board of directors each for a three-year term or until such director’s successor has been duly elected and qualified, or until such director’s earlier death, resignation, retirement or removal; alternatively, in the event the condition precedent proposals, including the Charter Approval Proposal, are not approved, to elect two directors to serve as Class I directors on the Company’s Board, each for a term of three years expiring at the annual meeting of stockholders to be held in 2024 or until such director’s successor has been duly elected and qualified, or until such director’s earlier death, resignation, retirement or removal. The Company believes it is in the best interests of stockholders to allow stockholders to vote upon the election of newly appointed directors. For additional information, please see the section entitled “Proposal No. 7 — The Director Election Proposal.”
Q: Why is the Company proposing the Adjournment Proposal?
A: We are proposing the Adjournment Proposal to allow our Board to adjourn the Special Meeting to a later date or dates to permit further solicitation of proxies in the event that there are insufficient votes for, or otherwise in connection with, the approval of the Business Combination Proposal, the Nasdaq Stock Issuance Proposal, the Charter Approval Proposal, the Incentive Plan Proposal or the ESPP Proposal, but no other proposal if the Business Combination Proposal, the Nasdaq Stock Issuance Proposal, the Charter Approval Proposal, the Incentive Plan Proposal and the ESPP Proposal are approved. Please see the section entitled “Proposal No. 8 — The Adjournment Proposal” for additional information.
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Q: Why is the Company proposing the Auditor Ratification Proposal?
A: Neither our bylaws or other governing documents or law require stockholder ratification of the appointment of Withum, as our independent registered public accounting firm. However, the Board is submitting the appointment of Withum to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Company’s audit committee will reconsider whether or not to continue to retain that firm. Even if the selection is ratified, the audit committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders. For additional information, please see the section entitled “Proposal No. 9 — The Auditor Ratification Proposal.”
Q: What happens if I sell my shares of common stock before the Special Meeting?
A: The record date for the Special Meeting is earlier than the date that the Business Combination is expected to be completed. If you transfer your shares of common stock after the record date, but before the Special Meeting, unless the transferee obtains from you a proxy to vote those shares, you will retain your right to vote at the Special Meeting. However, you will not be able to seek redemption of your shares of common stock because you will no longer be able to deliver them for cancellation upon consummation of the Business Combination. If you transfer your shares of common stock prior to the record date, you will have no right to vote those shares at the Special Meeting or redeem those shares for a pro rata portion of the proceeds held in our Trust Account.
Q: What constitutes a quorum at the Special Meeting?
A: A majority of the voting power of all outstanding shares of the capital stock of the Company entitled to vote must be present in person or by proxy (which would include presence at the virtual Special Meeting) to constitute a quorum for the transaction of business at the Special Meeting. Abstentions will be counted as present for the purpose of determining a quorum. Our Initial Stockholders, who currently own approximately 20% of our issued and outstanding shares of common stock, will count towards this quorum. In the absence of a quorum, the chairman of the Special Meeting has power to adjourn the Special Meeting. As of the record date for the Special Meeting, a majority of the outstanding shares of the Company representing a majority of voting power would be required to achieve a quorum.
Q: What vote is required to approve the proposals presented at the Special Meeting?
A: Proposal 1 — The Business Combination Proposal: The approval of the Business Combination Proposal requires the affirmative vote of a majority of the votes cast by the stockholders present in person or represented by proxy and entitled to vote at the Special Meeting. Accordingly, a Company stockholder’s failure to vote, as well as an abstention from voting and a broker non-vote, will have no effect on the Business Combination Proposal. Abstentions will be counted in connection with the determination of whether a valid quorum is established but will have no effect on the Business Combination Proposal. Our Initial Stockholders have agreed to vote their shares of common stock “FOR” the Business Combination Proposal.
Proposal 2 — The Nasdaq Stock Issuance Proposal: The approval of the Nasdaq Stock Issuance Proposal requires the affirmative vote of a majority of the votes cast by the stockholders present in person or represented by proxy and entitled to vote at the Special Meeting. Accordingly, under Delaware law, a Company stockholder’s failure to vote, as well as an abstention and broker non-vote, will have no effect on the Nasdaq Stock Issuance Proposal. Abstentions will be counted in connection with the determination of whether a valid quorum is established.
Proposal 3 — The Charter Approval Proposal: The approval of the Charter Approval Proposal requires the affirmative vote of holders of a majority of our outstanding shares of common stock entitled to vote at the Special Meeting. Accordingly, a Company stockholder’s failure to vote, as well as an abstention from voting and a broker non-vote, will have the same effect as a vote “AGAINST” such Charter Approval Proposal.
Proposal 4 — The Governance Proposal: The approval of the Governance Proposal, which is a non-binding advisory vote, requires the affirmative vote of a majority of the votes cast by the stockholders present in person
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or represented by proxy and entitled to vote at the Special Meeting. Accordingly, a Company stockholder’s failure to vote, as well as an abstention from voting and a broker non-vote, will have no effect on the Governance Proposal. Abstentions will be counted in connection with the determination of whether a valid quorum is established but will have no effect on the Governance Proposal.
Proposal 5 — The Incentive Plan Proposal: The approval of the Incentive Plan Proposal requires the affirmative vote of a majority of the votes cast by the stockholders present in person or represented by proxy and entitled to vote at the Special Meeting. Accordingly, under Delaware law, a Company stockholder’s failure to vote by proxy, as well as an abstention and broker non-vote, will have no effect on the Incentive Plan Proposal. Abstentions will be counted in connection with the determination of whether a valid quorum is established.
Proposal 6 — The ESPP Proposal: The approval of the ESPP Proposal requires the affirmative vote of a majority of the votes cast by the stockholders present in person or represented by proxy and entitled to vote at the Special Meeting. Accordingly, under Delaware law, a Company stockholder’s failure to vote by proxy, as well as an abstention and broker non-vote, will have no effect on the ESPP Proposal. Abstentions will be counted in connection with the determination of whether a valid quorum is established.
Proposal 7 — The Director Election Proposal: The approval of the Director Election Proposal requires the affirmative vote of a majority of the votes cast by the stockholders present in person or represented by proxy and entitled to vote at the Special Meeting. Accordingly, under Delaware law, a Company stockholder’s failure to vote by proxy, as well as an abstention and broker non-vote, will have no effect on the Director Election Proposal. Abstentions will be counted in connection with the determination of whether a valid quorum is established
Proposal 8 — The Adjournment Proposal: The approval of the Adjournment Proposal requires the affirmative vote of a majority of the votes cast by the stockholders present in person or represented by proxy and entitled to vote at the Special Meeting. Accordingly, a Company stockholder’s failure to vote, as well as an abstention from voting and a broker non-vote, will have no effect on the Adjournment Proposal. Abstentions will be counted in connection with the determination of whether a valid quorum is established but will have no effect on the Adjournment Proposal.
Proposal 9 — The Auditor Ratification Proposal: The approval of the Auditor Ratification Proposal requires the affirmative vote of a majority of the votes cast by the stockholders present in person or represented by proxy and entitled to vote at the Special Meeting. Accordingly, a Company stockholder’s failure to vote by proxy, as well as an abstention and broker non-vote, will have no effect on the Auditor Ratification Proposal. Abstentions will be counted in connection with the determination of whether a valid quorum is established
Q: What happens if the Business Combination Proposal is not approved?
A: If the Business Combination Proposal is not approved and we do not consummate a business combination by the applicable deadline, we will be required to dissolve and liquidate our Trust Account.
Q: May the Company, its Sponsor or the Company’s directors or officers or their affiliates purchase shares in connection with the Business Combination?
A: In connection with the stockholder vote to approve the proposed Business Combination, our Sponsor, directors or officers or their respective affiliates may privately negotiate transactions to purchase shares from stockholders who would have otherwise elected to have their shares redeemed in conjunction with a proxy solicitation pursuant to the proxy rules for a per-share pro rata portion of the Trust Account. None of our directors or officers or their respective affiliates will make any such purchases when they are in possession of any material non-public information not disclosed to the seller or during a restricted period under Regulation M under the Exchange Act. Such a purchase may include a contractual acknowledgement that such selling stockholder, although still the record holder of our shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights, and could include a contractual provision that directs such selling stockholder to vote such shares in a manner directed by the purchaser. In the event that our Sponsor,
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directors or officers or their affiliates purchase shares in privately negotiated transactions from public stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. Any such privately negotiated purchases may be effected at purchase prices that are below or in excess of the per-share pro rata portion of the Trust Account.
Q: How many votes do I have at the Special Meeting?
A: Our stockholders are entitled to one vote on each proposal presented at the Special Meeting for each share of common stock held of record as of [ ], the record date for the Special Meeting. As of the close of business on the record date, there were [ ] outstanding shares of our common stock.
Q: How do I vote?
A: If you were a stockholder of record on [ ], you may vote by granting a proxy. Specifically, you may vote:
•By Mail — You may vote by mail by completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided. Votes submitted by mail must be received by 11:59 pm Eastern time on [ ], 2021.
•You should sign your name exactly as it appears on the proxy card. If you are signing in a representative capacity (for example, as guardian, executor, trustee, custodian, attorney or officer of a corporation), indicate your name and title or capacity.
•We encourage you to sign and return the proxy card even if you plan to attend the Special Meeting so that your shares will be voted if you are unable to attend the Special Meeting.
•If you receive more than one proxy card, it is an indication that your shares are held in multiple accounts. Please sign and return all proxy cards to ensure that all of your shares are voted.
•Voting at the Special Meeting — We will be hosting the Special Meeting via live webcast. If you attend the Special Meeting, you may submit your vote at the Special Meeting online at https://www.cstproxy.com/CMLS/sm2021, in which case any votes that you previously submitted will be superseded by the vote that you cast at the Special Meeting.
If you hold your shares in street name, you must submit voting instructions to your broker, bank or other nominee. In most instances, you will be able to do this over the Internet, by telephone or by mail. Please refer to information from your bank, broker, or other nominee on how to submit voting instructions.
Q: What will happen if I abstain from voting or fail to vote at the Special Meeting?
A: At the Special Meeting, we will count a properly executed proxy marked “ABSTAIN” with respect to a particular proposal as present for purposes of determining whether a quorum is present. For purposes of approval, a failure to vote or an abstention will have no effect on the Business Combination Proposal, the Governance Proposal, the Incentive Plan Proposal, the ESPP Proposal, the Director Election Proposal, the Adjournment Proposal and the Auditor Ratification Proposal. However, an abstention or failure to vote will have the same effect as a vote “AGAINST” the Charter Approval Proposal.
Q: What will happen if I sign and return my proxy card without indicating how I wish to vote?
A: Signed and dated proxies received by us without an indication of how the stockholder intends to vote on a proposal will be voted “FOR” each proposal presented to the stockholders. The proxyholders may use their discretion to vote on any other matters which properly come before the Special Meeting.
Q: If I am not going to attend the Special Meeting, should I return my proxy card instead?
A: Yes. Whether you plan to attend the Special Meeting or not, please read the enclosed proxy statement carefully. If you are a stockholder of record of our common stock as of the close of business on the record date,
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you can vote by proxy by mail by following the instructions provided in the enclosed proxy card. Please note that if you are a beneficial owner of our common stock, you may vote by submitting voting instructions to your broker, bank or nominee, or otherwise by following instructions provided by your broker, bank or nominee. Telephone and internet voting may be available to beneficial owners. Please refer to the vote instruction form provided by your broker, bank or nominee.
Q: What is the difference between a stockholder of record and a “street name” holder?
A: If your shares are registered directly in your name with the Company’s transfer agent, Continental Stock Transfer & Trust Company, you are considered the stockholder of record with respect to those shares, and access to proxy materials is being provided directly to you. If your shares are held in a stock brokerage account or by a bank or other nominee, then you are considered the beneficial owner of those shares, which are considered to be held in “street name.” Access to proxy materials is being provided to you by your broker, bank or other nominee who is considered the stockholder of record with respect to those shares.
Q: If my shares are held in “street name,” will my broker, bank or nominee automatically vote my shares for me?
A: No. Under the rules of various national and regional securities exchanges, your broker, bank, or nominee cannot vote your shares with respect to non-routine matters unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank, or nominee.
We believe that all of the proposals presented to the stockholders at this Special Meeting, other than the Auditor Ratification Proposal, will be considered non-routine and, therefore, your broker, bank, or nominee cannot vote your shares without your instruction on any of the proposals presented at the Special Meeting, other than the Auditor Ratification Proposal. Accordingly, if your broker submits a proxy for your shares with respect to the Auditor Ratification Proposal, but you do not submit voting instructions on the other proposals, your broker, bank, or other nominee may deliver a proxy card expressly indicating that it is NOT voting your shares; this indication that a broker, bank, or nominee is not voting your shares is referred to as a “broker non-vote.” Broker non-votes will not be counted for the purposes of determining the existence of a quorum or for purposes of determining the number of votes cast at the Special Meeting. Your bank, broker, or other nominee can vote your shares only if you provide instructions on how to vote. You should instruct your broker to vote your shares in accordance with directions you provide.
Q: How will a broker non-vote impact the results of each proposal?
A: Broker non-votes will count as a vote “AGAINST” the Charter Approval Proposal but will not have any effect on the outcome of any other proposals.
Q: May I change my vote after I have returned my signed proxy card or voting instruction form?
A: Yes. If you are a holder of record of our common stock as of the close of business on the record date, whether you vote by mail, you can change or revoke your proxy before it is voted at the Special Meeting by:
•delivering a signed written notice of revocation to our Secretary at CM Life Sciences, Inc., 667 Madison Ave, New York, NY 10065, bearing a date later than the date of the proxy, stating that the proxy is revoked;
•signing and delivering a new proxy, relating to the same shares and bearing a later date; or
•attending and voting at the Special Meeting and voting, although attendance at the special meeting will not, by itself, revoke a proxy.
If you are a beneficial owner of our common stock as of the close of business on the record date, you must follow the instructions of your broker, bank or other nominee to revoke or change your voting instructions.
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Q: What should I do if I receive more than one set of voting materials?
A: You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to cast your vote with respect to all of your shares.
Q: How will the Company’s Sponsor, directors and officers vote?
A: Prior to our IPO, we entered into agreements with our Sponsor and each of our directors and officers, pursuant to which each agreed to vote any shares of common stock owned by them in favor of the Business Combination Proposal. None of our Sponsor, directors or officers has purchased any shares of our common stock during or after our IPO and, as of the date of this proxy statement, neither we nor our Sponsor, directors or officers have entered into agreements, and are not currently in negotiations, to purchase shares prior to the consummation of the Business Combination. Currently, our Initial Stockholders own approximately 20% of our issued and outstanding shares of common stock, including all of the Founder Shares, and will be able to vote all such shares at the Special Meeting.
Q: What interests do the Sponsor and the Company’s current officers and directors have in the Business Combination?
A: Our Sponsor and certain members of our Board and officers have interests in the Business Combination that are different from or in addition to (and which may conflict with) your interests. You should take these interests into account in deciding whether to approve the Business Combination. These interests include:
•the fact that our Initial Stockholders have agreed not to redeem any of the Founder Shares in connection with a stockholder vote to approve the Business Combination;
•the fact that our Sponsor will retain 11,068,750 Founder Shares upon the Closing;
•the fact that our Initial Stockholders have agreed to waive their rights to liquidating distributions from the Trust Account with respect to their Founder Shares if we fail to complete an initial business combination by the applicable deadline;
•if the Trust Account is liquidated, including in the event we are unable to complete an initial business combination within the required time period, our Sponsor has agreed to indemnify us to ensure that the proceeds in the Trust Account are not reduced below $10.00 per public share, or such lesser per public share amount as is in the Trust Account on the liquidation date, by the claims of prospective target businesses with which we have entered into an acquisition agreement or claims of any third party (other than our independent public accountants) for services rendered or products sold to us, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the Trust Account;
•the continued indemnification of our existing directors and officers and the continuation of our directors’ and officers’ liability insurance after the Business Combination;
•the fact that Nat Turner, Emily Leproust and Eli Casdin will remain as board members of the post-combination company, and each may be entitled to receive compensation for serving on the board of directors of the post-combination company;
•the fact that our Sponsor, officers and directors will lose their entire investment in us and will not be reimbursed for any out-of-pocket expenses if an initial business combination is not consummated by the applicable deadline;
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•that Corvex Master Fund LP, Corvex Select Equity Master Fund LP, Corvex Dynamic Equity Select Master Fund LP, and JS Capital LP, funds that are advised by an affiliate of the Sponsor, have entered into Subscription Agreements with the Company, pursuant to which such affiliates have committed to purchase 240,000; 3,696,000; 64,000; and 500,000 shares of common stock in the PIPE Investment, respectively, for an aggregate commitment of approximately $2,400,000; $36,960,000; $640,000; $5,000,000, respectively; and
•that Casdin Partners Master Fund, L.P., a fund that is advised by an affiliate of the Sponsor, has entered into a Subscription Agreement with the Company, pursuant to which the affiliate has committed to purchase 5,000,000 shares of common stock in the PIPE Investment for an aggregate commitment of approximately $50,000,000.
These interests may influence our directors in making their recommendation that you vote in favor of the approval of the Business Combination.
Q: What happens if I vote against the Business Combination Proposal?
A: If you vote against the Business Combination Proposal but the Business Combination Proposal still obtains the affirmative vote of a majority of the votes cast by holders of our common stock represented in person or by proxy and entitled to vote at the Special Meeting, then the Business Combination Proposal will be approved and, assuming the approval of the Nasdaq Stock Issuance Proposal, the Incentive Plan Approval, the ESPP Approval and the Charter Approval Proposal and the satisfaction or waiver of the other conditions to closing, the Business Combination will be consummated in accordance with the terms of the Merger Agreement.
If you vote against the Business Combination Proposal and the Business Combination Proposal does not obtain the affirmative vote of a majority of the votes cast by holders of our of common stock represented in person or by proxy and entitled to vote at the Special Meeting, then the Business Combination Proposal will fail and we will not consummate the Business Combination. If we do not consummate the Business Combination, we may continue to try to complete a business combination with a different target business until the applicable deadline. If we fail to complete an initial business combination by the applicable deadline, then we will be required to dissolve and liquidate the Trust Account by returning the then-remaining funds in such account to our public stockholders.
Q: Do I have redemption rights?
A: Pursuant to our current certificate of incorporation, we are providing our public stockholders with the opportunity to redeem, upon the Closing, shares of common stock for cash equal to the pro rata share of the aggregate amount on deposit (as of two business days prior to the Closing) in the Trust Account that holds the proceeds of our IPO (including interest not previously released to the Company to pay franchise and income taxes), subject to certain limitations. For illustrative purposes, based on the balance of the Trust Account of approximately $442 million as of January 29 , 2021, the estimated per share redemption price would have been approximately $10.00. Public stockholders may elect to redeem their shares even if they vote for the Business Combination. Any request to redeem public shares, once made, may be withdrawn at any time until the deadline for exercising redemption requests and thereafter, with our consent, until the Closing. If we receive valid redemption requests from holders of public shares prior to the redemption deadline, we may, at our sole discretion, following the redemption deadline and until the date of Closing, seek and permit withdrawals by one or more of such holders of their redemption requests. We may select which holders to seek such withdrawals of redemption requests from based on any factors we may deem relevant, and the purpose of seeking such withdrawals may be to increase the funds held in the Trust Account, including where we otherwise would not satisfy the closing condition that the amount in the Trust Account and the proceeds from the PIPE Investment equal or exceed $300,000,000, after the payment of redemptions and satisfaction of Company and Sema4 transaction expenses.
Our Initial Stockholders have agreed to waive their redemption rights with respect to such shares, which will be excluded from the pro rata calculation used to determine the per-share redemption price. Each redemption of shares of common stock by our public stockholders will reduce the amount in the Trust Account. The Merger
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Agreement provides that Sema4’s obligation to consummate the Business Combination is conditioned on the funds in the Trust Account, together with the funding of any amounts payable under the Subscription Agreements, will be no less than an aggregate amount of $300,000,000. This condition to closing in the Merger Agreement is for the sole benefit of, and may be waived only by, Sema4. If, as a result of redemptions of common stock by our public stockholders, this condition is not met (or waived by Sema4), then Sema4 may elect not to consummate the Business Combination. In addition, in no event will we redeem shares of our common stock in an amount that would result in the Company’s failure to have net tangible assets equaling or exceeding $5,000,001 (such that we are not subject to the SEC’s “penny stock” rules). Holders of our outstanding public warrants do not have redemption rights in connection with the Business Combination. Unless otherwise specified, the information in the accompanying proxy statement assumes that none of our public stockholders exercise their redemption rights with respect to their shares of common stock by the applicable deadline.
Q: Can the Initial Stockholders redeem their Founder Shares in connection with consummation of the Business Combination?
A: No. Our Initial Stockholders, officers and directors have agreed to waive their redemption rights with respect to their shares of common stock in connection with the consummation of our Business Combination. Our Initial Stockholders have also agreed to waive their right to a conversion price adjustment with respect to any shares of our common stock they may hold in connection with the consummation of the Business Combination.
Q: Is there a limit on the number of shares I may redeem?
A: We have no specified maximum redemption threshold under our current certificate of incorporation. Each redemption of shares of common stock by our public stockholders will reduce the amount in the Trust Account. The Merger Agreement provides that Sema4’s obligation to consummate the Business Combination is conditioned on the funds in the Trust Account, together with the funding of any amounts payable under the Subscription Agreements, being no less than an aggregate amount of $300,000,000. This condition to closing in the Merger Agreement is for the sole benefit of, and may be waived only by, Sema4. If, as a result of redemptions of common stock by our public stockholders, this condition is not met (or waived by Sema4), then Sema4 may elect not to consummate the Business Combination. In addition, in no event will we redeem shares of our common stock in an amount that would result in the Company’s failure to have net tangible assets equaling or exceeding $5,000,001 (so that we are not subject to the SEC’s “penny stock” rules).
Q: Is there a limit on the total number of shares that may be redeemed?
A: Yes. Our current certificate of incorporation provides that we may not redeem our public shares in an amount that would result in the Company’s failure to have net tangible assets in excess of $5,000,000 (such that we are not subject to the SEC’s “penny stock” rules) or any greater net tangible asset or cash requirement which may be contained in the Merger Agreement. Other than this limitation, our current certificate of incorporation does not provide a specified maximum redemption threshold. In addition, the Merger Agreement provides that the obligation of Sema4 to consummate the Business Combination is conditioned on the amount in the Trust Account and the proceeds from the PIPE Investment equaling or exceeding $300,000,000, after the payment of redemptions and satisfaction of Company and Sema4 transaction expenses. In the event the aggregate cash consideration we would be required to pay for all shares of common stock that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the Merger Agreement exceeds the aggregate amount of cash available to us, we may not complete the Business Combination or redeem any shares, all shares of common stock submitted for redemption will be returned to the holders thereof, and we instead may search for an alternate business combination.
Based on the amount of approximately $442,763,951 million in our Trust Account as of December 31, 2020, and taking into account the anticipated gross proceeds of approximately $350,000,000 from the PIPE Investment, all of our shares of common stock may be redeemed and still enable us to have sufficient cash to satisfy the cash closing conditions in the Merger Agreement. We refer to this as the maximum redemption scenario.
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Q: Will how I vote affect my ability to exercise redemption rights?
A: No. You may exercise your redemption rights whether you vote your shares of common stock for or against, or whether you abstain from voting on the Business Combination Proposal or any other proposal described by this proxy statement. As a result, the Merger Agreement can be approved by stockholders who will redeem their shares and no longer remain stockholders, leaving stockholders who choose not to redeem their shares holding shares in a company with a potentially less-liquid trading market, fewer stockholders, potentially less cash and the potential inability to meet the listing standards of Nasdaq.
Q: How do I exercise my redemption rights?
A: In order to exercise your redemption rights, you must (i)(a) hold public shares or (b) hold public shares through units and elect to separate your unites into the underlying public shares and public warrants prior to exercising your redemption rights with respect to the public shares; and (ii) prior to 5:00 p.m. Eastern time on [ ] (two business days before the Special Meeting) (a) submit a written request to the Transfer Agent that the Company redeem your public shares for cash and (b) deliver your public shares to the Transfer Agent, physically or electronically through DTC (as defined herein). Any demand for redemption, once made, may be withdrawn at any time until the deadline for exercising redemption requests and thereafter, with our consent, until the Closing.
The Transfer Agent’s address is as follows:
Continental Stock Transfer & Trust Company
1 State Street, 30th Floor
New York, New York 10004
Attention: Mark Zimkind
Email: mzimkind@continentalstock.com
Stockholders seeking to exercise their redemption rights and opting to deliver physical certificates should allot sufficient time to obtain physical certificates from the Transfer Agent and time to effect delivery. It is our understanding that stockholders should generally allot at least two weeks to obtain physical certificates from the Transfer Agent. However, we do not have any control over this process and it may take longer than two weeks. Stockholders who hold their shares in street name will have to coordinate with their bank, broker or other nominee to have the shares certificated or delivered electronically.
Stockholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name” are required to either tender their certificates to our Transfer Agent prior to the date set forth in these proxy materials, or up to two business days prior to the vote on the proposal to approve the Business Combination at the Special Meeting, or to deliver their shares to the Transfer Agent electronically using Depository Trust Company’s (“DTC”) Deposit/Withdrawal At Custodian (“DWAC”) system, at such stockholder’s option. The requirement for physical or electronic delivery prior to the Special Meeting ensures that a redeeming stockholder’s election to redeem is irrevocable once the Business Combination is approved.
There is a nominal cost associated with the above-referenced tendering process and the act of certificating the shares or delivering them through the DWAC system. The Transfer Agent will typically charge a tendering broker a fee and it is in the broker’s discretion whether or not to pass this cost on to the redeeming stockholder. However, this fee would be incurred regardless of whether or not we require stockholders seeking to exercise redemption rights to tender their shares, as the need to deliver shares is a requirement to exercising redemption rights, regardless of the timing of when such delivery must be effectuated.
Q: What are the U.S. federal income tax consequences of exercising my redemption rights?
A: The U.S. federal income tax consequences of exercising your redemption rights depends on your particular facts and circumstances. It is possible that you may be treated as selling your public shares for cash and, as a result, recognize capital gain or capital loss. It is also possible that the redemption may be treated as a
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distribution for U.S. federal income tax purposes depending on the amount of public shares that you own or are deemed to own (including through the ownership of the warrants). Please see the section entitled “Proposal No. 1 — Approval of the Business Combination — Material United States Federal Income Tax Considerations for Public Stockholders Exercising Redemption Rights” for a more detailed discussion of the U.S. federal income tax considerations of an exercise of redemption rights. We urge you to consult your tax advisors regarding the tax consequences of exercising your redemption rights in your particular facts and circumstances.
Q: If I am a Company warrant holder, can I exercise redemption rights with respect to my public warrants?
A: No. The holders of our public warrants have no redemption rights with respect to our public warrants.
Q: Do I have appraisal rights if I object to the proposed Business Combination?
A: No. Appraisal rights are not available to holders of our common stock in connection with the Business Combination.
Q: What happens to the funds held in the Trust Account upon consummation of the Business Combination?
A: The funds held in the Trust Account (together with the proceeds from the PIPE Investment) will be used to pay certain fees, costs and expenses (including regulatory fees, legal fees, accounting fees, printer fees and other professional fees) that were incurred by the Company and other parties to the Merger Agreement in connection with the transactions contemplated by the Merger Agreement, including the Business Combination, and pursuant to the terms of the Merger Agreement.
Q: What happens if the Business Combination is not consummated?
A: There are certain circumstances under which the Merger Agreement may be terminated. Please see the section entitled “Proposal No. 1 — Approval of the Business Combination — The Merger Agreement” for information regarding the parties’ specific termination rights.
If we do not consummate the Business Combination, we may continue to try to complete a business combination with a different target business until the applicable deadline. If we fail to complete an initial business combination by the applicable deadline, then we will: (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem our public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest not previously released to the Company to pay its franchise and income taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish our public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law; and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our Board, dissolve and liquidate, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the initial public offering price per unit in the IPO. Please see the section entitled “Risk Factors — Risks Related to the Company and the Business Combination.”
Holders of our Founder Shares have waived any right to any liquidation distribution with respect to such shares and the underwriters of our IPO agreed to waive their rights to the business combination marketing fee held in the Trust Account in the event we do not complete our initial business combination within the required period. In addition, if we fail to complete a business combination by the applicable deadline, there will be no redemption rights or liquidating distributions with respect to our outstanding warrants, which will expire worthless.
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Q: When is the Business Combination expected to be completed?
A: The closing of the Business Combination is expected to take place on or prior to the third business day following the satisfaction or waiver of the conditions described below in the subsection entitled “Proposal No. 1 — Approval of the Business Combination — The Merger Agreement — Conditions to Closing of the Business Combination.” The closing is expected to occur in the third quarter of 2021. The Merger Agreement may be terminated by the Company or Sema4 if the Closing has not occurred by November 9, 2021.
For a description of the conditions to the completion of the Business Combination, see the section entitled “Proposal No. 1 — Approval of the Business Combination — The Merger Agreement— Conditions to Closing of the Business Combination.”
Q: What do I need to do now?
A: You are urged to carefully read and consider the information contained in this proxy statement, including the Annexes, and to consider how the Business Combination will affect you as a stockholder. You should then vote as soon as possible in accordance with the instructions provided in this proxy statement and on the enclosed proxy card or, if you hold your shares through a brokerage firm, bank or other nominee, on the voting instruction form provided by the broker, bank or nominee.
Q: Who will solicit and pay the cost of soliciting proxies for the Special Meeting?
A: The Company is soliciting proxies on behalf of its Board. The Company will pay the cost of soliciting proxies for the Special Meeting. The Company has engaged D.F. King to assist in the solicitation of proxies for the Special Meeting. The Company has agreed to pay D.F. King a fee of $25,000, plus disbursements, and will reimburse D.F. King for its reasonable out-of-pocket expenses and indemnify D.F. King and its affiliates against certain claims, liabilities, losses, damages and expenses. The Company will also reimburse banks, brokers and other custodians, nominees and fiduciaries representing beneficial owners of shares of the Company’s common stock for their expenses in forwarding soliciting materials to beneficial owners of the Company’s common stock and in obtaining voting instructions from those owners. Our directors, officers and employees may also solicit proxies by telephone, by facsimile, by mail, on the Internet or in person. They will not be paid any additional amounts for soliciting proxies.
Q: Who can help answer my questions?
A: If you have questions about the proposals or if you need additional copies of this proxy statement or the enclosed proxy card you should contact:
c/o Corvex Management LP
667 Madison Avenue
New York 10065
Attn: Eli Casdin
Email: Eli@casdincapital.com
You may also contact our proxy solicitor at:
D.F. King & Co., Inc.
48 Wall Street, 22nd Floor
New York, NY 10005
Stockholders Call (toll-free): (800) 967-5074
Banks and Brokers Call: (212) 269-5550
Email: CMLF@dfking.com
To obtain timely delivery, our stockholders must request the materials no later than five business days prior to the Special Meeting.
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You may also obtain additional information about us from documents filed with the SEC by following the instructions in the section entitled “Where You Can Find More Information.”
If you intend to seek redemption of your public shares, you will need to send a letter demanding redemption and deliver your stock (either physically or electronically) to our Transfer Agent prior to the Special Meeting in accordance with the procedures detailed under the question “How do I exercise my redemption rights?” If you have questions regarding the certification of your position or delivery of your stock, please contact our Transfer Agent:
Continental Stock Transfer & Trust Company
1 State Street, 30th Floor
New York, New York 10004
Attention: Mark Zimkind
Email: mzimkind@continentalstock.com
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SUMMARY OF THE PROXY STATEMENT
This summary highlights selected information contained in this proxy statement and does not contain all of the information that may be important to you. You should carefully read this entire proxy statement, including the Annexes and accompanying financial statements of the Company and Sema4, to fully understand the proposed Business Combination (as described below) before voting on the proposals to be considered at the Special Meeting (as described below). Please see the section entitled “Where You Can Find More Information” of this proxy statement.
Unless otherwise specified, all share calculations assume: (i) no exercise of redemption rights by the Company’s public stockholders; (ii) no inclusion of any shares of Class A common stock issuable upon the exercise of the Company’s warrants or any shares to be issued pursuant to the Incentive Plan or the ESPP at or following the Closing; (iii) an equity raise of approximately $350,000,000 of gross proceeds from the PIPE Investment of 35,000,000 shares of common stock at $10.00 per share; and (iv) no issuance of the Earn-Out Shares to Sema4 equity holders upon satisfaction of the earn-out conditions.
Parties to the Business Combination
The Company
The Company is a blank check company incorporated as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
The mailing address of the Company’s principal executive office is 667 Madison Avenue, New York, New York 10065.
Merger Sub
Merger Sub, a Delaware corporation, is a wholly-owned subsidiary of the Company, formed by the Company in February 1, 2021, to consummate the Business Combination. In the Business Combination, Merger Sub will merge with and into Sema4, with Sema4 continuing as the surviving corporation.
The mailing address of Merger Sub’s principal executive office is 667 Madison Avenue, New York, New York 10065.
Sema4
Sema4 was formed in October 2015 as Mount Sinai Genomics, Inc., a Delaware corporation, doing business as Sema4. Sema4 is a patient-centered, health intelligence company with a mission to use artificial intelligence, or AI, and machine learning, or ML, to enable personalized medicine for all. By leveraging leading data scientists and technology, the company’s platform powers remarkable and unique insights that transform the practice of medicine including how disease is diagnosed, treated, and prevented.
Today, Sema4 has established one of the largest, most comprehensive, and fastest growing integrated health information platforms, collecting and leveraging genomic and clinical data in partnership with patients, healthcare providers and an extensive ecosystem of life science industry contributors. Sema4 is now generating and processing over 30 petabytes of data per month, growing by almost 1 petabyte per month, and maintains a database that includes more than 11.5 million de-identified clinical records, many with genomic profiles, integrated in a way that enables physicians to proactively diagnose and manage disease. This expanding database is a virtuous cycle of data: new data enables Sema4 to further develop, train, and refine predictive models and drive differentiated insights, which models and insights Sema4 deploys through its next generation diagnostic and research solutions and portals to support clinicians and researchers and engage patients, all of which interactions generate more data to continue the cycle.
While there are many companies seeking to harness the potential of big data to address the challenges within the healthcare ecosystem, Sema4 believes that few have the scale of Sema4 and its origins as a company conceived and
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nurtured within a world-class health system. We believe Sema4’s scale and health system origin have enabled it to build a significant and highly differentiated technological and informational asset positioned to drive precision medicine solutions into the standard of care in an unparalleled way.
Sema4’s principal executive office is located at 333 Ludlow Street, North Tower, 8th floor, Stamford, CT 06902, and its telephone number is (800) 298-6470. Sema4’s corporate website address is https://www.sema4.com/. Sema4’s website and the information contained on, or that can be accessed through, the website is not deemed to be incorporated by reference in, and is not considered part of, this proxy statement.
The Business Combination Proposal
On February 9, 2021, the Company and Merger Sub entered into the Merger Agreement with Sema4. The Sema4 stockholders have unanimously adopted and approved the Merger Agreement. CMLS shares are currently listed on Nasdaq. If the Merger Agreement is approved by Company stockholders at the Special Meeting, Merger Sub will merge with and into Sema4, with Sema4 surviving the merger as a wholly owned subsidiary of the Company. For more information about the transactions contemplated by the Merger Agreement, please see the section entitled “Proposal No. 1 — Approval of the Business Combination.” Copy of the Merger Agreement is attached to this proxy statement as Annex A.
Merger Consideration to the Sema4 shareholders
Subject to the terms and conditions of the Merger Agreement, each share of Sema4 Class B common stock issued and outstanding immediately prior to the effective time will be converted into 1/100th of a share of Sema4 Class A common stock as set forth in the Merger Agreement. Immediately thereafter, each share of Sema4 Common Stock and Sema4 Preferred Stock (other than Excluded Shares and Dissenting Shares) issued and outstanding immediately prior to the effective time will be cancelled and automatically deemed for all purposes to represent the right to receive a portion of the merger consideration, with each Sema4 Stockholder being entitled to receive (collectively, clauses (i) through (iii), the “merger consideration”) (i) its pro rata share of the Closing Available Cash if such Sema4 Stockholder has made an election to receive cash, and, if further elected, such Sema4 Stockholder’s pro rata share excess amount of any closing available excess cash, provided that in no event will a Sema4 Stockholder’s cash payment exceed an amount equal to the product of such Sema4 Stockholder’s total outstanding shares multiplied by the Per Share Amount; (ii) a number of shares of Company Class A common stock equal to the quotient of: (A)(1) the product of (x) such Sema4 Stockholder’s total outstanding shares multiplied by the Per Share Amount minus (2) such Sema4 Stockholder’s stockholder cash payment amount divided by (B) $10.00; and (iii) its earn out pro rata share of any earn out shares to which such Sema4 Stockholder is entitled pursuant to the terms of the Merger Agreement (the “Earnout”), including the Earnout RSUs, which Earnout RSUs are subject to vesting and will not be legally issued and outstanding shares of Company common stock at the closing of the Business Combination (the “Closing”), in each case of clauses (i), (ii) and (iii), without interest, upon surrender of stock certificates representing all of such Sema4 Stockholder’s Sema4 Common Stock and Sema4 Preferred Stock and delivery of the other documents required pursuant to the Merger Agreement. As of the effective time, each Sema4 Stockholder shall cease to have any other rights in and to Sema4 and each certificate relating to ownership of shares of Sema4 Common Stock and Sema4 Preferred Stock (other than Excluded Shares) will only represent the right to receive the applicable portion of the merger consideration.
Each issued and outstanding share of common stock of Merger Sub shall be converted into and become one validly issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of the entity surviving the merger (the “Surviving Corporation”), which shall constitute the only outstanding shares of capital stock of the Surviving Corporation. From and after the effective time, all certificates representing the common stock of Merger Sub shall be deemed for all purposes to represent the number of shares of common stock of the Surviving Corporation into which they were converted.
Each share of Sema4 Common Stock and Sema4 Preferred Stock held in the Sema4’s treasury or owned by the Company, Merger Sub or Sema4 immediately prior to the effective time (each an “Excluded Share”), shall be cancelled and no consideration shall be paid or payable with respect thereto.
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The numbers of shares of Company Class A common stock that Sema4 Stockholders are entitled to receive as a result of the Merger is based upon the number of shares of Company Class A common stock, and as otherwise contemplated by the Merger Agreement shall be adjusted to appropriately reflect the effect of any stock split, split-up, reverse stock split, stock dividend or distribution (including any dividend or distribution of securities convertible into Company Class A common stock), extraordinary cash dividend, reorganization, recapitalization, reclassification, combination, exchange of shares or other like change with respect to Company Class A common stock occurring on or after the date hereof and prior to the Closing.
Following the Closing, within five Business Days after the occurrence of a Triggering Event, the Company shall issue or cause to be issued to the Sema4 Stockholders (other than holders of Dissenting Shares) and the Earn-Out Service Providers, the following shares of Company Class A common stock (which shall be equitably adjusted for stock splits, reverse stock splits, stock dividends, reorganizations, recapitalizations, reclassifications, combination, exchange of shares or other like change or transaction with respect to Company Class A common stock occurring on or after the Closing, the “Earn-Out Shares”), upon the terms and subject to the conditions set forth in the Merger Agreement and other related agreements: (i) upon the occurrence of Triggering Event I, a one-time issuance of a number of Earn-Out Shares equal to 3.66% of the Earn-Out Total Outstanding Shares; (ii) upon the occurrence of Triggering Event II, a one-time issuance of a number of Earn-Out Shares equal to 3.67% of the Earn-Out Total Outstanding Shares; and (iii) upon the occurrence of Triggering Event III, a one-time issuance of a number of Earn-Out Shares equal to 3.67% of the Earn-Out Total Outstanding Shares. Upon the last day of any calendar year, the Company shall issue or cause to be issued to the Sema4 Stockholders (other than holders of Dissenting Shares) and the Earn-Out Service Providers the Earn-Out Shares that are in the Forfeiture Pool as in effect as of such date and that would have been issuable to Sema4 Stockholders as a result of the occurrence of a Triggering Event had they not been made subject to an award of Earnout RSUs.
Sema4 Stockholders and the Earn-Out Service Providers shall be entitled to receive Earn-Out Shares upon each Triggering Event, provided, however that each Triggering Event may only occur once, if at all, and in no event shall the Sema4 Stockholders and Earn-Out Service Providers, in the aggregate, be entitled to receive more than an aggregate number of Earn-Out Shares equal to more than 11% of the Earn-Out Total Outstanding Shares. Earn-Out Shares will be issued from the Forfeiture Pool only if the applicable Triggering event occurs.
Related Agreements
This section describes the material provisions of the Related Agreements, but does not purport to describe all of the terms thereof. The following summary is qualified in its entirety by reference to the complete text of each of the Related Agreements. Forms of the Forfeiture Agreement, Shareholder Lock-up Letter, Sponsor Support Agreement and Subscription Agreement are attached hereto as Annexes C, D, and E, respectively. Stockholders and other interested parties are urged to read such Related Agreements in their entirety prior to voting on the proposals presented at the Special Meeting.
Amended and Restated Registration Rights Agreement
In connection with the execution of the Business Combination Agreement, the Company, the Sponsor and certain other parties thereto (collectively, the “rights holders”) enter into the Amended and Restated Registration Rights Agreement, a form of which was agreed to on February 9, 2021, which will amend and restate in its entirety the existing registration rights agreement, dated September 1, 2020, by and between CMLS and the parties thereto. Pursuant to the terms of the Amended and Restated Registration Rights Agreement, CMLS is to prepare and file with the SEC, no later than 30 days after the Closing Date, a shelf registration statement for an offering to be made on a continuous basis from time to time with respect to the resale of the registrable shares under the Amended and Restated Registration Rights Agreement. CMLS is further required to use commercially reasonable efforts to cause such shelf registration statement to be declared effective as soon as possible after filing, but in no event later than the earlier of 60 days following the filing date thereof and five business days after the SEC notifies CMLS that it will not review such registration statement, subject to extension in the event that the registration is subject comments from the SEC.
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In addition, pursuant to the terms of the Amended and Restated Registration Rights Agreement and subject to certain requirements and customary conditions, including with regard to the number of demand rights that may be exercised, the rights holders may demand at any time or from time to time, that CMLS file a registration statement on Form S-1 or Form S-3 to register certain shares of CMLS Class A common stock held by such rights holders. The Amended and Restated Registration Rights Agreement will also provide the rights holders with “piggy-back” registration rights, subject to certain requirements and customary conditions. The Company will bear the expenses incurred in connection with the filing of any such registration statement.
Forfeiture Agreement
In connection with the execution of the Merger Agreement, the Company and the Sponsor entered into the Forfeiture Agreement whereby the Sponsor agreed to forfeit certain of its Private Placement Warrants and Class B common stock. Under the Forfeiture Agreement, up to 33% of Sponsor’s warrants and shares are subject to forfeiture based on the extent of redemptions from the Trust Account, such that Sponsor shall forfeit the full 33% of such warrants and shares if there are redemptions for 100% of the Trust Account and no warrants or shares if there are less than 3% redemptions (with the portion of such 33% of Sponsor’s warrants and shares that are forfeited adjusting on a linear basis in between 100% and 3% redemptions from the Trust Account).
ISMMS Lock-Up Agreement
In connection with the execution of the Merger Agreement, the Company and Icahn School of Medicine at Mount Sinai (“ISMMS”), a shareholder of Sema4, entered into the ISMMS Lock-Up Agreement whereby ISMMS agreed not to (i) sell, offer to sell, contract or agree to sell, hypothecate pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act, with respect to shares of Company Class A common stock issued to ISMMS pursuant to the Merger Agreement (such shares of Company Class A common stock, the “Lock-up Shares”), (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any of the Lock-up Shares, in cash or otherwise, or (iii) publicly announce any intention to effect any transaction specified in clause (i) or (ii); the ISMMS will take none of the foregoing actions until the earliest of (a) the date that is 180 calendar days from the Closing Date, and (b) the date following the Closing Date on which the Company completes a liquidation, merger, stock exchange or other similar transaction that results in all of the Company’s stockholders having the right to exchange their shares of Company capital stock for cash, securities or other property. Notwithstanding the foregoing, the ISMMS may take any of the actions specified in clauses (i), (ii) and (iii) above at any time after the first date on which the closing price of Company Class A common stock has equaled or exceeded $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Closing Date.
Shareholder Lock-up Agreement
In connection with the execution of the Merger Agreement, each Sema4 Stockholder holding more than 1% of the outstanding common stock of Sema4 prior to the into a Stockholder Lock-up Agreement whereby such shareholder agreed not to (i) sell, offer to sell, contract or agree to sell, hypothecate pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act, with respect to shares of Company Class A common stock issued to such shareholder pursuant to the Merger Agreement (such shares of Company Class A common stock, the “Lock-up Shares”), (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any of the Lock-up Shares, in cash or otherwise, or (iii) publicly announce any intention to effect any transaction specified in clause (i) or (ii); the PIPE Investor will take none of the foregoing actions until the earliest of (a) the date that is 180 calendar days from the Closing Date, and (b) the date following the Closing Date on which the Company completes a liquidation, merger, stock exchange or other similar transaction that results in all of the Company’s stockholders having the right to exchange their shares of Company capital stock for cash, securities or other property. Notwithstanding the foregoing, the shareholder may take any of the actions specified in clauses (i), (ii) and (iii) above at any time after the first date on which the closing price of Company Class A common stock has
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equaled or exceeded $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Closing Date.
Sponsor Support Agreement
In connection with the execution of the Merger Agreement, the Sponsor entered into the Sponsor Support Agreement with the Company and Sema4, pursuant to which, among other things, the Sponsor agreed to vote all shares of Company Class B Stock and Private Placement Warrants beneficially owned by the Sponsor in favor of each of the proposals and any other matters necessary or reasonably requested by Sema4 for consummation of the merger and the other transactions contemplated by the Merger Agreement, and against any other competing business combination proposal.
The Sponsor Support Agreement provides that the Sponsor will not redeem any shares of common stock in connection with the merger.
The Sponsor also agreed, subject to certain exceptions, not to (a) transfer any of its Company Class B Stock (which, immediately prior to the effective time, will be converted into 1/100th of a share of Class A common stock in accordance with organizational documents of Sema4) or Private Placement Warrants, (b) enter into any swap or other arrangement that transfers to another the Sponsor’s Company Class B Stock or Private Placement Warrants, (c) publicly announce any intention to effect any transaction specified by the foregoing until the earlier of (i) the effective time, (ii) such date and time as the Merger Agreement is terminated in accordance with its terms (the earlier of (i) and (ii), the “expiration time”), (iii) liquidation of the Company subsequent to the Closing.
The Sponsor Support Agreement provides for the terms of the Sponsor’s lock-up period with respect to its capital stock and warrants, the agreement also provides that no amendment may be made to the Inside Letter.
The Sponsor Support Agreement shall terminate and be of no further force or effect upon the earliest of: (i) the expiration time, (b) the liquidation of the Company, (iii) the written agreement of the Company, Sponsor and Sema4. Upon such termination of the Sponsor Support Agreement, all obligations of the parties under such agreement will terminate, without any liability or other obligation on the part of any party to any person in respect hereof or the transactions contemplated hereby, and no party shall have any claim against another (and no person shall have any rights against such party), whether under contract, tort or otherwise, with respect to the subject matter hereof; provided, however, that the termination of the Sponsor Support Agreement shall not relieve any party hereto from liability arising in respect of any breach of this Sponsor Agreement prior to such termination.
Inside Letter
In connection with the underwriting agreement and the IPO of the Company, the Company, the Sponsor and each insider and the Sponsor entered into the Insider Letter providing for a lock-up in relation to the Sponsor’s Class B common stock of the Company or any shares of Class A common stock of the Company until the earlier of (a) one year after the completion of the Company’s initial business combination and (b) subsequent to the business combination, (x) if the closing price of the Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations, and the like) for any 20 trading days within any 30-day trading day period commencing at least 150 days after the Company’s initial business combination or (y) the date following the completion of the Company’s initial business combination on which the Company completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of the Company’s stockholders having the right to exchange their shares of Class A common stock for cash securities or other property. The Sponsor and each insider also agreed not to transfer any Private Placement Warrants (or any share of Class A common stock issued or issuable upon the exercise of the Private Placement Warrants), until 30 days after the completion of a business combination.
Subscription Agreements
In connection with the Business Combination, the Company entered into the Subscription Agreements with the PIPE Investors, pursuant to which, among other things, the Company agreed to issue and sell to the PIPE Investors,
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in private placements to close immediately prior to the Closing, an aggregate of 35,000,000 shares of common stock at $10.00 per share, for an aggregate purchase price of $350,000,000. The obligations to consummate the subscriptions are conditioned upon, among other things, customary closing conditions and the consummation of the transactions contemplated by the Merger Agreement. The PIPE Investment will be consummated substantially concurrently with the Closing. All of the PIPE investors have affirmed to us that the Restatement (as defined below) would not affect the closing of the Transaction. For more information about the Restatement please see the section entitled “Risk Factors — Risks Related to the Company and the Business Combination”.
Incentive Plan
Our Board approved the form of the Incentive Plan on February 9, 2021, subject to stockholder approval of the Incentive Plan at the Special Meeting. The purpose of the Incentive Plan is to promote our long-term success of the Company and the creation of stockholder value by encouraging service providers to focus on critical long-range corporate objectives, encouraging the attraction and retention of service providers with exceptional qualifications and linking service providers directly to stockholder interests through increased stock ownership. These incentives are provided through the grant of stock options, including incentive stock options, and nonqualified stock options, stock appreciation rights, restricted stock, and restricted stock units. For more information about the Incentive Plan, please see the section entitled “Proposal No. 5 — Approval of the Incentive Plan — Summary of the Incentive Plan.”
Employee Stock Purchase Plan
Our Board approved the form of the ESPP on February 9, 2021 subject to stockholder approval of the ESPP at the Special Meeting. The purpose of the ESPP Proposal is to provide eligible employees with an opportunity to increase their proprietary interest in the success of the Company by purchasing common stock on favorable terms and to pay for such purchases through payroll deductions. The Company believes by providing eligible employees with an opportunity to increase their proprietary interest in the success of the Company, the ESPP will motivate participants to offer their maximum effort to the Company and help focus them on the creation of long-term value consistent with the interests of the Company’s stockholders. For more information about the Incentive Plan, please see the section entitled “Proposal No. 6 — Approval of the ESPP.”
Redemption Rights
Pursuant to our current certificate of incorporation, holders of public shares may elect to have their shares redeemed for cash at the applicable redemption price per share equal to the quotient obtained by dividing (i) the aggregate amount on deposit in the Trust Account as of two business days prior to the consummation of the Business Combination, including interest not previously released to the Company to pay its franchise and income taxes, by (ii) the total number of then-outstanding public shares; provided that the Company will not redeem any shares of common stock issued in the IPO to the extent that such redemption would result in the Company’s failure to have net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Exchange Act) in excess of $5,000,001. As of December 31, 2020, the estimated per share redemption price would have been approximately $10.00.
If a holder exercises its redemption rights, then such holder will be exchanging its shares of our common stock for cash and will no longer own shares of the post-combination company. Such a holder will be entitled to receive cash for its public shares only if it properly demands redemption and delivers its shares (either physically or electronically) to our Transfer Agent in accordance with the procedures described herein. Please see the section entitled “Special Meeting of Company Stockholders — Redemption Rights” for the procedures to be followed if you wish to redeem your shares for cash. Any request for redemption may be withdrawn until the deadline for submitting redemption requests and thereafter, with our consent, until the Closing.
Impact of the Business Combination on the Company’s Public Float
It is anticipated that, upon completion of the Business Combination, assuming no redemptions: (i) the Company’s public stockholders (other than the PIPE Investors) will retain an ownership interest of approximately 19.3% in the post-combination company; (ii) the PIPE Investors will own approximately 12.7% (excluding certain PIPE Investors, who owned shares pre-transaction) of the post-combination company (such that public stockholders,
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including PIPE Investors, will own approximately 32% (adding the foregoing 2 subsets) of the post-combination company); (iii) our Initial Stockholders (including our Sponsor) will own approximately 24.2% of the post-combination company; and (iv) the former Sema4 equity holders are expected to hold, in the aggregate, approximately 63.1% of the issued and outstanding shares of Company common stock. The foregoing percentage excludes 29,367,501 options for the purchase of 29,367,501 shares of Company common stock, which are authorized and subject to stock options but will not yet be issued at closing, as further described in the pro forma capitalization table in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information — Description of the Transaction.” The PIPE Investors have agreed to purchase 35,000,000 shares of common stock in the aggregate, for $350,000,000 of gross proceeds. The ownership percentage with respect to the post-combination company following the Business Combination does not take into account (i) warrants to purchase common stock that will remain outstanding immediately following the Business Combination, (ii) the issuance of the Earn-Out Shares to the Sema4 equity holders should the earn-out conditions in the Merger Agreement be satisfied or (iii) the issuance of any shares upon completion of the Business Combination under the Incentive Plan and the ESPP, copies of which are attached to this proxy statement as Annex D and Annex E, respectively. If the actual facts are different than these assumptions, the percentage ownership retained by the Company’s existing stockholders in the post-combination company will be different. For more information, please see the sections entitled “Summary of the Proxy Statement — Impact of the Business Combination on the Company’s Public Float,” “Unaudited Pro Forma Condensed Combined Financial Information,” “Proposal No. 5 — Approval of the Incentive Plan” and “Proposal No. 6 — Approval of the ESPP.”
The following table illustrates varying ownership levels in the Company, assuming no redemptions by the Company’s public stockholders and the maximum redemptions by the Company’s stockholders:
| No Redemptions | Maximum Redemptions | ||||||||||
| The Company’s public stockholders | 19.3 | % | 4.0 | % | |||||||
| PIPE Investors | 12.7 | % | 13.0 | % | |||||||
| Initial Stockholders (excluding certain PIPE Investors) | 4.8 | % | 3.6 | % | |||||||
| The former Sema4 equity holders | 63.1 | % | 79.4 | % | |||||||
| 100 | % | 100 | % | ||||||||
Please see ‘‘Unaudited Pro Forma Condensed Combined Financial Information — Description of the Transaction’’.
The Charter Approval Proposal
Upon the Closing, our current certificate of incorporation will be amended promptly to reflect the Charter Approval Proposal to:
•change the post-combination company’s name to [ ];
•delete provisions relating to our status as a blank check company;
•the charter provides for 380,000,000 class A common stock authorized and 1,000,000 of preferred stock authorized. We would not expect this needs to be increased based on the pro forma cap tables; and
•change the stockholder vote required to 66 2/3% in voting power of the stock of the post-combination company in order for stockholders to amend certain provisions of our Amended and Restated Certificate of Incorporation unless 2/3rds of the whole board of directors of the post-combination company approves such an amendment in which case such stockholder vote will require only a majority in voting power of the then outstanding stock of the post-combination company.
Please see the section entitled “Proposal No. 3 — The Charter Approval Proposal” for more information.
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Other Proposals
In addition, the stockholders of the Company will be asked to vote on:
•a proposal to approve, for purposes of complying with applicable Nasdaq Listing Rules, the issuance of more than 20% of the Company’s issued and outstanding common stock pursuant to the Business Combination and the PIPE Investment (Proposal No. 2);
•a separate proposal to approve, on a non-binding advisory basis, certain governance provisions in the Amended and Restated Certificate of Incorporation in accordance with SEC requirements (Proposal No. 4);
•a proposal to approve and adopt the Incentive Plan, a copy of which is attached to this proxy statement as Annex D, including the authorization of the initial share reserve under the Incentive Plan (Proposal No. 5);
•a proposal to approve and adopt the ESPP, a copy of which is attached to this proxy as Annex E, including the authorization of the initial share reserve under the ESPP (Proposal No. 6); and
•a proposal to adjourn the Special Meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if there are insufficient votes for, or otherwise in connection with, the approval of the Business Combination Proposal, the Nasdaq Stock Issuance Proposal, the Charter Approval Proposal, the Incentive Plan Proposal or the ESPP Proposal (Proposal No.7).
Please see the section entitled “Proposal No. 2 — The Nasdaq Stock Issuance Proposal,” “Proposal No. 4 — Approval of Certain Governance Provisions in the Amended and Restated Certificate of Incorporation,” “Proposal No. 5 — Approval of the Incentive Plan,” “Proposal No. 6 — Approval of the ESPP,” “Proposal No. 7 – The Director Election Proposal,” “Proposal No. 8 — The Adjournment Proposal” and “Proposal No. 9 --- The Auditor Ratification” for more information.
Date and Time of Special Meeting
The Special Meeting will be held on [ ], [ ] at [ ] Eastern time at https://www.cstproxy.com/CMLS/sm2021, or at such other date, time and place to which such meeting may be adjourned or postponed, to consider and vote upon the proposals. The Special Meeting will be conducted exclusively via live webcast and so stockholders will not be able to attend the meeting in person. Stockholders may attend the special meeting online and vote at the Special Meeting by visiting https://www.cstproxy.com/CMLS/sm2021 and entering your 12-digit control number, which is either included on the proxy card you received or obtained through Continental Stock Transfer & Trust Company.
Registering for the Special Meeting
Any stockholder wishing to attend the virtual meeting should register for the meeting by [ ], Eastern time, on [ ], 2021, at https://www.cstproxy.com/CMLS/sm2021. To register for the Special Meeting, please follow these instructions as applicable to the nature of your ownership of our common stock:
•If your shares are registered in your name with Continental Stock Transfer & Trust Company and you wish to attend the online-only Special Meeting, go to https://www.cstproxy.com/CMLS/sm2021, enter the 12-digit control number included on your proxy card or notice of the meeting and click on the “Click here to preregister for the online meeting” link at the top of the page. Just prior to the start of the meeting you will need to log back into the meeting site using your control number. Pre-registration is recommended but is not required in order to attend.
•Beneficial stockholders (those holding shares through a stock brokerage account or by a bank or other holder of record) who wish to attend the virtual meeting must obtain a legal proxy by contacting their account representative at the bank, broker, or other nominee that holds their shares and e-mail a copy (a legible photograph is sufficient) of their legal proxy to proxy@continentalstock.com. Beneficial stockholders who e-mail a valid legal proxy will be issued a 12-digit meeting control number that will allow them to register to attend and participate in the Special Meeting. After contacting Continental Stock
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Transfer & Trust Company, a beneficial holder will receive an e-mail prior to the meeting with a link and instructions for entering the virtual meeting. Beneficial stockholders should contact Continental Stock Transfer & Trust Company at least five (5) business days prior to the meeting date in order to ensure access.
Voting Power; Record Date
Only Company stockholders of record at the close of business on [ ], 2021, the record date for the Special Meeting, will be entitled to vote at the Special Meeting. You are entitled to one vote for each share of Company common stock that you owned as of the close of business on the record date. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker, bank or other nominee to ensure that votes related to the shares you beneficially own are properly counted. On the record date, there were 55,343,750 shares of Company common stock outstanding and entitled to vote, of which 44,275,000 are public shares and 11,068,750 are Founder Shares held by our Initial Stockholders.
Accounting Treatment
The Business Combination will be accounted for as a reverse recapitalization, in accordance with GAAP. Under this method of accounting, although CMLS will issue shares for outstanding equity interests of Sema4 in the Business Combination, CMLS will be treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination will be treated as the equivalent of Sema4 issuing stock for the net assets of CMLS, accompanied by a recapitalization. The net assets of CMLS will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination will be those of Sema4.
Appraisal Rights
Appraisal rights are not available to our stockholders in connection with the Business Combination.
Proxy Solicitation
The Company is soliciting proxies on behalf of its Board. Proxies may be solicited by mail. The Company has engaged D,F. King to assist in the solicitation of proxies.
If a stockholder grants a proxy, it may still vote its shares at the Special Meeting if it revokes its proxy before the Special Meeting. A stockholder may also change its vote by submitting a later-dated proxy, as described in the section entitled “Special Meeting of Company Stockholders — Revoking Your Proxy.”
Interests of Certain Persons in the Business Combination
In considering the recommendation of our Board to vote in favor of the Business Combination, stockholders should be aware that aside from their interests as stockholders, our Sponsor and certain members of our Board and officers have interests in the Business Combination that are different from, or in addition to, those of other stockholders generally. Our Board was aware of and considered these interests, among other matters, in evaluating and negotiating the Business Combination, and in recommending to stockholders that they approve the Business Combination. Stockholders should take these interests into account in deciding whether to approve the Business Combination.
These interests include, among other things:
•the fact that our Initial Stockholders have agreed not to redeem any of the Founder Shares in connection with a stockholder vote to approve the Business Combination;
•the fact that our Sponsor will retain 11,068,750 Founder Shares upon the Closing;
•the fact that our Initial Stockholders have agreed to waive their rights to liquidating distributions from the Trust Account with respect to their Founder Shares if we fail to complete an initial business combination by the applicable deadline;
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•if the Trust Account is liquidated, including in the event we are unable to complete an initial business combination within the required time period, our Sponsor has agreed to indemnify us to ensure that the proceeds in the Trust Account are not reduced below $10.00 per public share, or such lesser per public share amount as is in the Trust Account on the liquidation date, by the claims of prospective target businesses with which we have entered into an acquisition agreement or claims of any third party (other than our independent public accountants) for services rendered or products sold to us, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the Trust Account;
•the continued indemnification of our existing directors and officers and the continuation of our directors’ and officers’ liability insurance after the Business Combination; the fact that Joshua Ruch, Michael Pellini and Rachel Sherman may join as board members of the post-combination company (dependent on the approval of the Director Election Proposal), and Nat Turner, Emily Leproust and Eli Casdin will continue as a board member of the post-combination company, and each shall be entitled to receive compensation for serving on the board of directors of the post-combination company;
•the fact that our Sponsor, officers and directors will lose their entire investment in us and will not be reimbursed for any out-of-pocket expenses if an initial business combination is not consummated by the applicable deadline;
•that Corvex Master Fund LP, Corvex Select Equity Master Fund LP, Corvex Dynamic Equity Select Master Fund LP, and JS Capital LP, funds that are advised by an affiliate of the Sponsor, have entered into Subscription Agreements with the Company, pursuant to which such affiliates have committed to purchase 240,000; 3,696,000; 64,000; and 500,000 shares of common stock in the PIPE Investment, respectively, for an aggregate commitment of approximately $2,400,000; $36,960,000; $640,000; $5,000,000, respectively; and
•that Casdin Partners Master Fund, L.P., a fund that is advised by an affiliate of the Sponsor, has entered into a Subscription Agreement with the Company, pursuant to which the affiliate has committed to purchase 5,000,000 shares of common stock in the PIPE Investment for an aggregate commitment of approximately $50,000,000.
Reasons for the Approval of the Business Combination
We were formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We sought to do this by utilizing the networks and industry experience of both our Sponsor and our Board to identify, acquire and operate one or more businesses within or outside of the United States, although we were not limited to a particular industry or sector, we focused on the life sciences sector.
In particular, our Board considered, among other things, the following positive factors, although not weighted or in any order of significance:
•Leading Industry Position with Supportive Long-Term Dynamics and Competitive Market Advantage. The Board considered the fact that Sema4, with its next generation information and genomic platform that promises to yield insights to improve standards of care and drug discovery, satisfies all of the factors contributing to sustainable competitive advantages that the Board sought in a target.
•Stable Free Cash Flow, Prudent Debt and Financial Visibility. The Board considered that Sema4 has no debt, limited capital expenditures, and therefore satisfies the Board’s criteria of acquiring a business that has historically generated, or has the near-term potential to generate, strong and sustainable free cash flow.
•Clear Use of Proceeds and SPAC as Preferred Course of Action. The Board considered that a SPAC transaction is Sema4’s preferred course of action, as opposed to a traditional initial public offering, because Sema4 can provide forward-looking guidance and talk more directly about projections for future years that are backed by existing customer contracts. As a result, Sema4’s ability to become a publicly-traded
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company is accelerated through a SPAC, and the proceeds raised in the Business Combination will fund Sema4 to positive cash flow and enable selective acquisitions.
•Committed and Capable Management Team. The Board considered that Sema4 has a professional management team whose interests are aligned with those of our stockholders and can clearly and confidently articulate the business plan and market opportunities to public market investors. Founder and Chief Executive Officer Eric Schadt has built groups and companies throughout the industry to elucidate the complexity of human diseases, and he has published more than 450 peer-reviewed papers in leading scientific journals and contributed to discoveries relating to the genetic basis of common human diseases such as diabetes, obesity, and Alzheimer’s disease. Sema4 CFO Isaac Ro is an industry icon having over 20 years of financial leadership and experience, with a strong focus on the medical technology and life sciences space.
•Potential to Engage Key Industry Partners. The Board and management team includes individuals with relationships across the industry which will allow Sema4 to strategically align itself for synergistic collaborations and engagement with other industry leading companies.
•Potential to Grow, including Through Further Consolidation Opportunities. The Board considered that Sema4 has the potential to grow organically with its team of world class data scientists and engineers focused on category-defining healthcare intelligence. In particular, Sema4 is in an industry with significant opportunities and rationale for industry consolidation across multiple segments.
•Opportunities Arising from Sema4’s Business and Growth Model. The Board considered Sema4's focus on the opportunities arising from its patient-centric model, open architecture for partnerships, and a collaborative focus on key industry partners, including health systems and pharmaceutical companies that should drive growth, and that the additional cash available to Sema4 from the transaction should permit Sema4 to accelerate its business plan beyond the stand alone plan provided by Sema4.
•Committed and Capable Management Team. The Board considered that Sema4 has an experienced and professional management team. Founder and Chief Executive Officer Eric Schadt has built groups and companies throughout the industry to elucidate the complexity of human diseases, and he has published more than 450 peer-reviewed papers in leading scientific journals and contributed to discoveries relating to the genetic basis of common human diseases such as diabetes, obesity, and Alzheimer’s disease. Sema4 CFO Isaac Ro has over 20 years of financial leadership and experience, with a strong focus on the medical technology and life sciences space.
•Potential for Key Industry Partnerships. The Sema4 board and management team includes individuals with relationships across the industry that should allow Sema4 to strategically align itself for synergistic partnerships with other companies in the industry.
•Potential to Grow Through Both Organic and Inorganic Opportunities. The Board considered that Sema4 has the potential to grow organically with its team of data scientists and engineers focused on category-defining healthcare intelligence. In addition, Sema4 is in an industry with opportunities and rationale for inorganic growth through acquisitions of complementary businesses in addition to organic growth. The ability to take advantage of these opportunities is expected to be facilitated by the additional cash being made available to Sema4 as a result of the business combination.
•Benefit of Combining Board Members of both the Company and Sema4. The Board considered that the addition of members of the CM Life Board to the Sema4 board of directors as part of the business combination will provide Sema4 with additional board members experienced in the life sciences industry and with experience as members of the board of a public company. For more information about our decision-making process, please see the section entitled “Proposal No. 1 — Approval of the Business Combination — The Company’s Board of Directors’ Reasons for the Approval of the Business Combination.”
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Conditions to Closing of the Business Combination
Conditions to Each Party’s Obligations
The respective obligations of the Company and Sema4 to complete the Business Combination are subject to the satisfaction of the following conditions:
•the approval of the Merger Agreement and the transactions contemplated by the Merger Agreement by the requisite vote of the Sema4 stockholders;
•the Company must have $5,000,001 of net tangible assets, as more fully described in “Proposal No. 1 — Approval of the Business Combination — The Merger Agreement — Conditions to the Merger”;
•the applicable waiting period(s) under the HSR Act and, if required, any other applicable antitrust law in respect of the transactions contemplated by the Merger Agreement must have expired or been terminated; and
•there must be no legal requirement prohibiting, enjoining or making illegal the consummation of the transactions contemplated by the Merger Agreement and no restraining order prohibiting, enjoining or making illegal the consummation of such transactions may be in effect, as more fully described in “Proposal No. 1 — Approval of the Business Combination — The Merger Agreement — Conditions to the Merger”;
Conditions to the Company’s Obligations
The obligation of the Company to complete the Business Combination is also subject to the satisfaction, or waiver by the Company, of the following conditions:
•the accuracy of the representations and warranties of Sema4 as of the date of the Merger Agreement and as of the Closing, subject to certain materiality and material adverse effect thresholds, as more fully described in “Proposal No. 1 — Approval of the Business Combination — The Merger Agreement — Conditions to the Merger” ;
•Sema4 must have performed or complied with all agreements and covenants required by the Merger Agreement to be performed or complied with by it at or prior to the Closing Date, in each case in all material respects;
•Sema4 must have delivered to the Company a certificate signed by an officer of Sema4 certifying that the two preceding conditions have been satisfied;
•approval of the transactions contemplated by the Merger Agreement must have been received from the Sema4 stockholders;
•no material adverse effect may have occurred since the date of the Merger Agreement that is continuing; and
•Sema4 must have delivered, or caused to have been delivered, or must stand ready to deliver all of the certificates, instruments, contracts and other documents specified to be delivered by it hereunder, including copies of the documents to be delivered by the company pursuant to the Merger Agreement, duly executed by the applicable signatory or signatories specified therein, if any.
Conditions to Sema4’s Obligations
The obligation of Sema4 to complete the merger is also subject to the satisfaction, or waiver by Sema4, of the following conditions:
•the accuracy of the representations and warranties of the Company as of the date of the Merger Agreement and as of the Closing, subject to certain materiality and material adverse effect thresholds, as more fully
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described in “Proposal No. 1 — Approval of the Business Combination — The Merger Agreement — Conditions to the Merger”;
•the Company and Merger Sub must have performed or complied with all agreements and covenants required by the Merger Agreement to be performed or complied with by them on or prior to the Closing Date, in each case in all material respects;
•the Company must have delivered to Sema4 a certificate, signed by an executive officer of the Company and dated as of the Closing Date, certifying that the two preceding conditions have been satisfied;
•the Company must have delivered or must stand ready to deliver all of the certificates, instruments, contracts and other documents specified to be delivered by it hereunder, including copies of the documents to be delivered by the Company pursuant to the Merger Agreement, duly executed by the Company and Merger Sub, as applicable;
•the Company certificate of incorporation must be amended and restated in the form attached to the Merger Agreement and the Company Bylaws must be amended and restated in the form attached to the Merger Agreement;
•the Company must have made appropriate arrangements to have the Trust Account, less amounts paid and to be paid pursuant the Merger Agreement, available to the Company for payment of the cash payment amount to be paid at Closing, and the Company and Sema4 transaction costs at the Closing;
•the funds contained in the Trust Account, together with the Subscription Agreements to be received substantially concurrently with the Closing, must equal or exceed $300,000,000, following (i) payment of the aggregate amount of cash proceeds that will be required to satisfy any exercise of the redemptions by the Company stockholders, and (ii) payment of all Company and Sema4 transaction costs;
•the shares of Company common stock to be issued in connection with the Merger must have been approved for listing on the Nasdaq; and
•no material adverse effect must have occurred since the date of the Merger Agreement and be continuing.
Regulatory Matters
Under the HSR Act and the rules that have been promulgated thereunder by the U.S. Federal Trade Commission (“FTC”), certain transactions may not be consummated unless information has been furnished to the Antitrust Division of the Department of Justice (“Antitrust Division”) and the FTC and certain waiting period requirements have been satisfied. The Business Combination is subject to these requirements and may not be completed until the expiration of a 30-day waiting period following the filing of the required Notification and Report Forms with the Antitrust Division and the FTC or until early termination is granted. If the FTC or the Antitrust Division makes a request for additional information or documentary material related to the Business Combination (a “Second Request”), the waiting period with respect to the Business Combination will be extended for an additional period of 30 calendar days, which will begin on the date on which the Company and Sema4 each certify compliance with the Second Request. Complying with a Second Request can take a significant period of time. On February 24, 2021, the Company and Sema4 filed the required forms under the HSR Act with the Antitrust Division and the FTC. The waiting period under the HSR Act with respect to the Business Combination expired on March 26, 2021.
At any time before or after consummation of the Business Combination, notwithstanding any termination of the waiting period under the HSR Act, the applicable competition authorities could take such action under applicable antitrust laws as each deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the Business Combination. Private parties may also seek to take legal action under the antitrust laws under certain circumstances. We cannot assure you that the Antitrust Division, the FTC, any state attorney general, or any other government authority will not attempt to challenge the Business Combination on antitrust grounds, and, if such a challenge is made, we cannot assure you as to its result. Neither the Company nor Sema4 is aware of any material regulatory approvals or actions that are required for completion of the Business Combination
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other than the expiration or early termination of the waiting period under the HSR Act. It is presently contemplated that if any such additional regulatory approvals or actions are required, those approvals or actions will be sought. There can be no assurance, however, that any additional approvals or actions will be obtained.
Quorum and Required Vote for Proposals for the Special Meeting
A quorum of Company stockholders is necessary to hold a valid meeting. A quorum will be present at the Special Meeting if a majority of the common stock outstanding on the record date and entitled to vote at the Special Meeting is represented in person or by proxy. Abstentions will count as present for the purposes of establishing a quorum.
The approval of the Business Combination Proposal, the Nasdaq Stock Issuance Proposal, the Governance Proposal, which is a non-binding advisory vote, the Incentive Plan Proposal, the ESPP Proposal, the Director Proposal, the Adjournment Proposal and the Auditor Ratification Proposal requires the affirmative vote of a majority of the votes cast by holders of our common stock represented in person or by proxy and entitled to vote at the Special Meeting. The approval of the Charter Approval Proposal requires the affirmative vote of holders of a majority of our outstanding shares of common stock entitled to vote thereon at the Special Meeting.
A failure to vote or an abstention will have no effect on the Business Combination Proposal, the Nasdaq Stock Issuance Proposal, the Governance Proposal, the Incentive Plan Proposal, the ESPP Proposal, and the Adjournment Proposal. However, an abstention or failure to vote will have the same effect as a vote “AGAINST” the Charter Approval Proposal.
The proposals in this proxy statement (other than the Governance Proposal, the Auditor Ratification Proposal and the Adjournment Proposal) are conditioned on the approval of the Business Combination Proposal, the Nasdaq Stock Issuance Proposal, the Incentive Plan Proposal and the ESPP Proposal.
It is important for you to note that in the event that the Business Combination Proposal, the Nasdaq Stock Issuance Proposal, the Incentive Plan Proposal, the ESPP Proposal or the Charter Approval Proposal do not receive the requisite vote for approval, we will not consummate the Business Combination. If we do not consummate the Business Combination and fail to complete an initial business combination by the applicable deadline, we will be required to dissolve and liquidate our Trust Account by returning the then remaining funds in such account to our public stockholders.
Recommendation to Company Stockholders
Our Board believes that each of the Business Combination Proposal, the Nasdaq Stock Issuance Proposal, the Charter Approval Proposal, the Governance Proposal, the Incentive Plan Proposal, the ESPP Proposal, the Director Election Proposal, the Adjournment Proposal and the Auditor Ratification Proposal to be presented at the Special Meeting is in the best interests of the Company and our stockholders and recommends that its stockholders vote “FOR” each of the proposals.
When you consider the recommendation of our Board in favor of approval of the Business Combination Proposal, you should keep in mind that our Sponsor and certain members of our Board and officers have interests in the Business Combination that are different from or in addition to (or which may conflict with) your interests as a stockholder. Stockholders should take these interests into account in deciding whether to approve the proposals presented at the Special Meeting, including the Business Combination Proposal. Please see “Special Meeting of Company Stockholders — Recommendation to Company Stockholders.”
Risk Factors
In evaluating the Business Combination and the proposals to be considered and voted on at the Special Meeting, you should carefully review and consider the risk factors set forth under the section entitled “Risk Factors” of this proxy statement. The occurrence of one or more of the events or circumstances described in that section, alone or in combination with other events or circumstances, may have a material adverse effect on (i) the ability of the Company and Sema4 to complete the Business Combination, and (ii) the business, cash flows, financial condition
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and results of operations of Sema4 prior to the consummation of the Business Combination and the post-combination company following the consummation of the Business Combination.
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SELECTED HISTORICAL FINANCIAL INFORMATION OF THE COMPANY
The following table contains summary historical financial data for the Company as of and for the year ended December 31, 2020. Such data for the year ended and as of December 31, 2020 have been derived from the audited financial statements of the Company, which are included elsewhere in this proxy statement. The information below is only a summary and should be read in conjunction with the sections entitled “The Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Information About the Company” and our financial statements, and the notes and schedules related thereto, which are included elsewhere in this proxy statement.
| Statement of Operations Data | For the Period from July 10, 2020 (Inception) Through December 31, 2020 | ||||
| General and administrative expenses | $ | 206,195 | |||
Loss from operations | (206,195) | ||||
| Other income: | |||||
| Interest earned on investments held in Trust Account | 13,951 | ||||
| Change in fair value of warrant liability | (38,510,584) | ||||
| Transaction Costs | (1,204,771) | ||||
| Loss before provision for income taxes | (39,907,599) | ||||
| Provision for income taxes | — | ||||
Net loss | $ | (39,907,599) | |||
| Weighted average shares outstanding of Class A redeemable common stock | 44,275,000 | ||||
Basic and diluted income per share, Class A redeemable common stock | $ | 0.00 | |||
| Weighted average shares outstanding of Class B non-redeemable common stock | 10,633,062 | ||||
Basic and diluted net loss per share, Class B non-redeemable common stock | $ | (3.75) | |||
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| Balance Sheet Data | For the Period from July 10, 2020 (Inception) Through December 31, 2020 | ||||
| ASSETS | |||||
| Current assets | |||||
| Cash | $ | 1,094,681 | |||
| Prepaid expenses | 277,031 | ||||
| Total Current Assets | 1,371,712 | ||||
| Cash and marketable securities held in trust account | 442,763,951 | ||||
Total Assets | 444,135,663 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||
| Current liabilities | |||||
| Accounts payable and accrued expenses | $ | 97,120 | |||
| Total Current Liabilities | 97,120 | ||||
| Warrant liability | 70,322,418 | ||||
| Deferred underwriting fee payable | 15,496,250 | ||||
Total Liabilities | 85,915,788 | ||||
Commitments and contingencies | |||||
| Class A common stock subject to possible redemption, 35,321,987 shares at $10.00 per share | 353,219,870 | ||||
| Stockholders’ Equity | |||||
| Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding | — | ||||
| Class A common stock, $0.0001 par value; 380,000,000 shares authorized; 8,953,013 shares issued and outstanding (excluding 35,321,987 shares subject to possible redemption) | 895 | ||||
| Class B common stock, $0.0001 par value; 20,000,000 shares authorized; 11,068,750 shares issued and outstanding | 1,107 | ||||
| Additional paid-in capital | 44,905,602 | ||||
| Accumulated deficit | (39,907,599) | ||||
Total Stockholders’ Equity | 5,000,005 | ||||
Total Liabilities and Stockholders’ Equity | $ | 444,135,663 | |||
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| Cash Flow Data | For the Period from July 10, 2020 (Inception) Through December 31, 2020 | ||||
| Cash Flows from Operating Activities: | |||||
| Net loss | $ | (39,907,599) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||
| Interest earned on investments held in Trust Account | (13,951) | ||||
| Change in fair value of warrant liability | 38,510,584 | ||||
| Transaction costs | 1,204,771 | ||||
| Changes in operating assets and liabilities: | |||||
| Prepaid expenses | (277,031) | ||||
| Accrued expenses | 97,120 | ||||
Net cash used in operating activities | (386,106) | ||||
| Cash Flows from Investing Activities: | |||||
| Investment of cash into Trust Account | (442,750,000) | ||||
Net cash used in investing activities | (442,750,000) | ||||
| Cash Flows from Financing Activities: | |||||
| Proceeds from sale of Units, net of underwriting discounts paid | 433,895,000 | ||||
| Proceeds from sale of Private Placement Warrants | 10,855,000 | ||||
| Proceeds from promissory note – related party | 112,837 | ||||
| Repayment of promissory note – related party | (165,081) | ||||
| Payment of offering costs | (466,969) | ||||
Net cash provided by financing activities | 444,230,787 | ||||
| Net Change in Cash | 1,094,681 | ||||
| Cash – Beginning of period | — | ||||
Cash – End of period | $ | 1,094,681 | |||
| Non-Cash financing activities: | |||||
| Initial classification of common stock subject to possible redemption | $ | 380,268,982 | |||
| Change in value of common stock subject to possible redemption | $ | (27,049,112) | |||
| Initial classification of warrant liabilities | $ | 31,811,834 | |||
| Deferred underwriting fee payable | $ | 15,496,250 | |||
| Offering costs paid directly by Sponsor in consideration for the issuance of Class B common stock | $ | 25,000 | |||
| Payment of offering costs through promissory note — related party | $ | 52,244 | |||
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SELECTED HISTORICAL FINANCIAL DATA OF SEMA4
The selected historical consolidated statements of operations data of Sema4 for the years ended December 31, 2020, 2019 and 2018 and the historical consolidated balance sheet data as of December 31, 2020 and 2018 are derived from Sema4’s audited consolidated financial statements included elsewhere in this proxy statement. Sema4’s historical results are not necessarily indicative of the results that may be expected in the future. You should read the following selected historical consolidated financial data together with “Sema4’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Sema4 consolidated financial statements and related notes included elsewhere in this proxy statement.
Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
(in thousands, except per share amounts) | |||||||||||||||||
Revenue | |||||||||||||||||
Diagnostic test revenue (including related party revenue of $285, $0 and $0 for the years ended December 31, 2020, 2019, and 2018, respectively)(1) | $ | 175,351 | $ | 191,667 | $ | 132,970 | |||||||||||
Other revenue (including related party revenue of $3, $1,180 and $254 for the years ended December 31, 2020, 2019 and 2018, respectively) | 3,971 | 4,507 | 371 | ||||||||||||||
Total revenue | 179,322 | 196,174 | 133,341 | ||||||||||||||
Cost of services (including related party expenses of $2,189, $1,859 and $4,122 for the years ended December 31, 2020, 2019 and 2018, respectively)(1) | 184,648 | 119,623 | 92,093 | ||||||||||||||
Gross (loss) profit | (5,326) | 76,551 | 41,248 | ||||||||||||||
Research and development | 72,700 | 34,910 | 21,383 | ||||||||||||||
Selling and marketing | 53,831 | 33,118 | 19,947 | ||||||||||||||
General and administrative | 100,742 | 29,484 | 19,449 | ||||||||||||||
Related party expenses | 9,395 | 9,452 | 9,132 | ||||||||||||||
Loss from operations | (241,994) | (30,413) | (28,663) | ||||||||||||||
Other income (expense): | |||||||||||||||||
Interest income | 506 | 988 | — | ||||||||||||||
Interest expense | (2,474) | (783) | (248) | ||||||||||||||
Gain on extinguishment of debt | — | — | 4,500 | ||||||||||||||
Other income, net | 2,622 | 504 | 539 | ||||||||||||||
Total other income, net | 654 | 709 | 4,791 | ||||||||||||||
Loss before income taxes | (241,340) | (29,704) | (23,872) | ||||||||||||||
Income tax provision | — | — | — | ||||||||||||||
Net loss and comprehensive loss | $ | (241,340) | $ | (29,704) | $ | (23,872) | |||||||||||
Redeemable convertible preferred stock dividends | — | 3,039 | 2,951 | ||||||||||||||
Net loss attributable to common stockholders | $ | (241,340) | $ | (32,743) | $ | (26,823) | |||||||||||
Weighted average shares outstanding of Class A common stock | 1 | 1 | 1 | ||||||||||||||
Basic and diluted net loss per share, Class A common stock | $ | (5,824) | $ | (32,743) | $ | (26,823) | |||||||||||
Weighted average shares outstanding of Class B common stock | 4,044 | — | — | ||||||||||||||
Basic and diluted net loss per share, Class B common stock | (58) | — | — | ||||||||||||||
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_________________
(1)Includes stock-based compensation expense as follows:
Year Ended December 31, | |||||||||||||||||
2020 | 2019 | 2018 | |||||||||||||||
(in thousands) | |||||||||||||||||
| Cost of services | $ | 13,947 | $ | 710 | $ | 748 | |||||||||||
| Research and development | 26,650 | 1,281 | 1,135 | ||||||||||||||
| Selling and marketing | 10,750 | 650 | 416 | ||||||||||||||
| General and administrative | 68,884 | 2,841 | 3,306 | ||||||||||||||
| Total stock-based compensation expense | $ | 120,231 | $ | 5,482 | $ | 5,605 | |||||||||||
As of December 31, | |||||||||||
2020 | 2019 | ||||||||||
| (in thousands) | |||||||||||
| Consolidated Balance Sheet Data: | |||||||||||
| Cash and cash equivalents | $ | 108,132 | $ | 115,006 | |||||||
| Total assets | 251,642 | 203,839 | |||||||||
| Total liabilities | 247,254 | 75,435 | |||||||||
| Convertible preferred stock | 334,439 | 217,115 | |||||||||
| Total stockholders’ (deficit) equity | (330,051) | (88,711) | |||||||||
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SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following selected unaudited pro forma condensed combined financial data is derived from the unaudited pro forma condensed combined balance sheet and unaudited pro forma condensed combined statement of operations included elsewhere in this proxy statement/prospectus.
The unaudited pro forma condensed combined financial statements are based on CMLS’s historical financial statements and Sema4’s historical financial statements as adjusted to give effect to the Business Combination and the PIPE Investment. The unaudited pro forma condensed combined balance sheet gives pro forma effect to the Business Combination, treated as a reverse recapitalization for accounting purposes, and the PIPE Investment as if they had been consummated on December 31, 2020. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2020, give effect to the Business Combination and the PIPE Investment as if they had occurred on January 1, 2020, the beginning of the earliest period presented.
The unaudited pro forma condensed combined financial statements were prepared in accordance with Article 11 of SEC Regulation S-X, as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” Release No. 33-10786 replaces the existing pro forma adjustment criteria with simplified requirements to depict the accounting for the transaction (“Transaction Accounting Adjustments”) and present the reasonably estimable synergies and other transaction effects that have occurred or reasonably expected to occur (“Management’s Adjustments”). CMLS has elected not to present Management’s Adjustments and will only be presenting Transaction Accounting Adjustments in the unaudited pro forma condensed combined financial statements. The adjustments presented in the unaudited pro forma condensed combined financial statements have been identified and presented to provide relevant information necessary for an understanding of the combined company upon consummation of the Business Combination and the PIPE Investment.
The unaudited pro forma condensed combined financial statements are for illustrative purposes only. The financial results may have been different had the companies always been combined. You should not rely on the unaudited pro forma condensed combined financial information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined company will experience. CMLS and Sema4 have not had any historical relationship prior to the Business Combination. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.
This information should be read together with CMLS’s and Sema4’s historical financial statements and related notes, “Unaudited Pro Forma Condensed Combined Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of CMLS,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Sema4,” and other financial information relating to CMLS and Sema4 included elsewhere in this proxy statement/prospectus.
The selected unaudited pro forma condensed combined financial data below presents two redemption scenarios as follows:
•Assuming no Redemptions: This presentation assumes that no CMLS public stockholders exercise their rights to redeem any of their Public Shares for a pro rata portion of the funds in the Trust Account. Thus, the full amount held in the Trust Account as of Closing is available for the Business Combination, and Sema4 equity holders receive $333.0 million of Merger Consideration in cash at Closing.
•Assuming maximum Redemptions: This presentation assumes that CMLS public stockholders holding 35,321,987 shares of Class A common stock exercise their rights to redeem their Public Shares (as defined herein) or a pro rata portion of the funds in the Trust Account. This scenario gives effect to redemptions of 35,321,987 shares of Class A common stock of CMLS for aggregate redemption payments of $353.2 million, using a per-share redemption price of $10.00, which is the maximum redemption amount after which the closing conditions of the Merger Agreement are still achieved. Under this maximum redemption scenario, Sema4 equity holders would not be entitled to receive any of their Merger Consideration in cash, and the closing cash payment amount under the Merger Agreement is $0.
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Additionally, 2,923,462 shares of Class B common stock would be forfeited by the Sponsor as a result of the maximum redemptions in accordance with the Forfeiture Agreement.
| Pro Forma | |||||||||||
| Year Ended December 31, 2020 | |||||||||||
| Scenario 1 Assuming No Redemptions | Scenario 2 Assuming Maximum Redemptions | ||||||||||
| (in thousands) | |||||||||||
| Combined Statement of Operations data: | |||||||||||
| Total revenue | $ | 179,322 | $ | 179,322 | |||||||
| Loss from operations | (246,575) | (246,575) | |||||||||
| Net loss | (285,637) | (285,637) | |||||||||
| Net loss attributable to common stockholders | (285,637) | (285,637) | |||||||||
| Pro Forma | |||||||||||
| As of December 31, 2020 | |||||||||||
| Scenario 1 Assuming No Redemptions | Scenario 2 Assuming Maximum Redemptions | ||||||||||
| (in thousands) | |||||||||||
| Combined Balance Sheet data: | |||||||||||
| Total assets | $ | 655,166 | $ | 634,946 | |||||||
| Long-term debt | 18,971 | 18,971 | |||||||||
| Total liabilities | 386,373 | 386,373 | |||||||||
| Total stockholders’ equity (deficit) | 268,793 | 248,573 | |||||||||
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including with respect to the anticipated timing, completion and effects of the Business Combination. These statements are based on the current expectations and beliefs of management of the Company and Sema4, and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These forward-looking statements include statements about future financial and operating results of Sema4; benefits of the Business Combination; statements of the plans, strategies and objectives of management for future operations of Sema4; statements regarding future economic conditions or performance; and other statements regarding the Business Combination. Forward-looking statements may contain words such as “will be,” “will,” “expect,” “anticipate,” “continue,” “project,” “believe,” “plan,” “could,” “estimate,” “forecast,” “guidance,” “intend,” “may,” “plan,” “possible,” “potential,” “predict,” “pursue,” “should,” “target” or similar expressions, and include the assumptions that underlie such statements. These statements include, but are not limited to statements about the ability of CMLS and Sema4 prior to the Business Combination, and the post-combination company following the Business Combination, to:
•meet the Closing conditions to and complete the Business Combination;
•realize the benefits expected from the Business Combination;
•the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement;
•the post-combination company’s ability to raise financing in the future and to comply with restrictive covenants related to long-term indebtedness;
•the post-combination company’s success in retaining or recruiting, or changes required in, its officers, key employees or directors following the Business Combination;
•factors relating to the business, operations and financial performance of Sema4, including:
◦the post-combination company’s ability to comply with laws and regulations applicable to its business; and
◦market conditions and global and economic factors beyond the post-combination company’s control;
•intense competition and competitive pressures from other companies worldwide in the industries in which the combined company will operate;
•litigation and the ability to adequately protect the post-combination company’s intellectual property rights; and
•other factors detailed under the section entitled “Risk Factors.”
Factors that could cause the actual results to differ materially from those described in the forward-looking statements include those set forth in the risk factors included in this proxy statement. Any forward-looking statements made in this proxy statement are qualified in their entirety by the forward-looking statements contained or referred to in this section, and there is no assurance that the actual results or developments anticipated by either the Company or Sema4 will be realized. All subsequent written and oral forward-looking statements concerning the Company, Sema4, the post-combination company, the transactions contemplated by the Merger Agreement or other matters attributable to the Company or Sema4 or any person acting on their behalf are expressly qualified in their entirety by the forward-looking statements above. Except to the extent required by applicable law, the Company and Sema4 are under no obligation (and expressly disclaim any such obligation) to update or revise their forward-looking statements whether as a result of new information, future events, or otherwise.
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RISK FACTORS
You should carefully review and consider the following risk factors and the other information contained in this proxy statement, including the financial statements and notes to the financial statements included herein, in evaluating the Business Combination and the proposals to be voted on at the Special Meeting. The following risk factors related to Sema4 apply to the business and operations of Sema4 and will also apply to the business and operations of the post-combination company following the completion of the Business Combination. The occurrence of one or more of the events or circumstances described in these risk factors, alone or in combination with other events or circumstances, may adversely affect the ability to complete or realize the anticipated benefits of the Business Combination, and may have an adverse effect on the business, cash flows, financial condition and results of operations of the post-combination company. You should also carefully consider the following risk factors in addition to the other information included in this proxy statement, including matters addressed in the section entitled “Cautionary Note Regarding Forward-Looking Statements.” We or Sema4 may face additional risks and uncertainties that are not presently known to us or Sema4, or that we or Sema4 currently deem immaterial, which may also impair our or Sema4’s business or financial condition. The following discussion should be read in conjunction with the financial statements and notes to the financial statements included herein.
Risks Related to Sema4’s Business, Industry and Operations
Certain risks may have a material adverse effect on Sema4’s business, financial condition and results of operations. These risks include those described below and may include additional risks and uncertainties not presently known to Sema4 or that Sema4 currently deems immaterial. These risks should be read in conjunction with the other information in this proxy statement, including Sema4’s financial statements and related notes thereto and “Sema4’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this proxy statement.
The COVID-19 pandemic has affected and may further materially and adversely affect Sema4’s business and financial results.
The COVID-19 pandemic, together with related precautionary measures, began to materially disrupt Sema4’s business in April 2020 and may continue to disrupt its business for an unknown period of time. The territories in which Sema4 markets, sells, distributes and performs its tests and performs its health information and data science services are attempting to address the COVID-19 pandemic in varying ways, including stay-at-home orders, temporarily closing businesses, restricting gatherings, restricting travel, and mandating social distancing and face coverings. Certain jurisdictions have begun re-opening only to return to restrictions due to increases in new COVID-19 cases. Even in areas where “stay-at-home” restrictions have been lifted and the number of cases of COVID-19 has declined, many individuals remain cautious about resuming activities such as preventive-care medical visits. Medical practices continue to be cautious about allowing individuals, such as sales representatives, into their offices. Many individuals continue to work from home rather than from an office setting. The level and nature of the disruption caused by COVID-19 is unpredictable, may be cyclical and long-lasting and may vary from location to location. As a result, Sema4 experienced a significant impact to its 2020 operating results, including its order volumes, revenues, margins, and cash utilization, among other measures.
Beginning in March 2020, Sema4 undertook temporary precautionary measures intended to help minimize the risk of the virus to its employees, including requiring most employees to work remotely; suspending field-based, face-to-face interactions by its sales force; requiring on-site employees to undergo COVID-19 testing, wear personal protective equipment (including face masks or shields) and maintain social distancing; pausing all non-essential travel for its employees; and limiting employee attendance at industry events and in-person work-related meetings, to the extent those events and meetings are continuing. Sema4’s current partners also took similar precautions, including suspending face-to-face interactions between sales representatives and healthcare providers.
Sema4 expects to adjust its precautionary measures at its various locations based on local recovery levels and applicable governmental regulations. For example, a portion of Sema4’s sales force has recommenced field-based interactions, although access to healthcare providers remains limited and the resumption of normal activities is
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expected to be gradual. Sema4’s business could be negatively affected if it takes excessive, ineffective or inadequate precautions.
The COVID-19 pandemic has materially impacted Sema4’s business, and may continue to impact its business for an unknown period of time. Such impacts may include the following:
•Healthcare providers or patients have canceled or delayed scheduling, and for an extended period of time may continue to cancel or delay scheduling, standard wellness visits and other non-emergency appointments and procedures (including oncology and pregnancy-related screenings), contributing to a decline in orders for Sema4’s products or services;
•Restrictions on travel, commerce and shipping may prevent patients and pathologists from shipping samples to Sema4’s clinical laboratories;
•Illnesses, quarantines, financial hardships, restrictions on travel, commerce and shipping, or other consequences of the pandemic, may disrupt Sema4’s supply chain or other business relationships, and it or other parties may assert rights under force majeure clauses to excuse performance;
•Sema4 has experienced, and for an extended period of time may continue to experience, reduced volumes at its clinical laboratories and it may need to suspend operations at some or all of its clinical laboratories;
•Sema4 has taken, and may take additional, cost cutting measures, which may hinder its efforts to commercialize its products or delay the development of future products and services. Further, Sema4 might not realize all of the cost savings it expects to achieve as a result of those efforts;
•Sema4 and its partners have postponed or cancelled clinical studies, which may delay or prevent its launch of future products and services;
•Sema4’s workforce, much of which has been asked to work remotely in an effort to reduce the spread of COVID-19, may be infected by the virus or otherwise distracted;
•A combination of factors, including infection from the virus, supply shortfalls, and inability to obtain or maintain equipment, could adversely affect Sema4’s lab capacity and its ability to meet the demand for its testing services. In addition, in April of 2020 Sema4 began offering a COVID-19 test and by devoting lab capacity and supplies to that test, it may experience capacity limitations and supply shortfalls that adversely affect its ability to provide women’s health and oncology testing, and other tests that may generate more revenue and higher profits; and
•Sema4 may inaccurately estimate the duration or severity of the COVID-19 pandemic, which could cause it to misalign its staffing, spending, activities and precautionary measures with current or future market conditions.
Despite Sema4’s efforts, the ultimate impact of COVID-19 depends on factors beyond its knowledge or control, including the duration and severity of the pandemic, third-party actions taken to contain its spread and mitigate its public health effects and short- and long-term changes in the behaviors of medical professionals and patients resulting from the pandemic.
Additionally, the anticipated economic consequences of the COVID-19 pandemic have adversely impacted financial markets, resulting in high share price volatility, reduced market liquidity, and substantial declines in the market prices of the securities of many publicly traded companies. Following the Business Combination volatile or declining markets for equities could adversely affect the post-combination company’s ability to raise capital in the future when needed through the sale of shares of common stock or other equity or equity-linked securities. If these market conditions persist when and if the post-combination company needs to raise capital, and if it is able to sell shares of its common stock following the Business Combination under then prevailing market conditions, the post-combination company might have to accept lower prices for its shares and issue a larger number of shares than might have been the case under better market conditions, resulting in significant dilution of the interests of its stockholders.
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Due to the high degree of uncertainty regarding the implementation and impact of the CARES Act and other legislation related to COVID-19, there can be no assurance that Sema4 will be able to comply with the applicable terms and conditions of the CARES Act and retain such assistance.
On March 27, 2020, the CARES Act was signed into law, aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, and modifications to the net interest deduction limitations. The CARES Act and similar legislation intended to provide assistance related to the COVID-19 pandemic also authorized $175.0 billion in funding to be distributed by the U.S. Department of Health and Human Services, or the HHS, to eligible health care providers. This funding, known as the Provider Relief Fund, is designated to fund eligible healthcare providers’ healthcare-related expenses or lost revenues attributable to COVID-19. On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law, which adds $3.0 billion to the Provider Relief Fund. Payments from the Provider Relief Fund are subject to certain eligibility criteria, as well as reporting and auditing requirements, but do not need to be repaid to the U.S. government if recipients comply with the applicable terms and conditions.
In 2020, Sema4 received $5.4 million as part of the stimulus, comprised of $2.6 million received under the Provider Relief Fund, or PRF, distribution and $2.8 million received under the Employee Retention Credit, or ERC, distribution. PRF distributions to healthcare providers are not loans and will not be required to be repaid; however, as a condition to receiving these payments, providers must agree to certain terms and conditions and submit sufficient documentation demonstrating that the funds are being used for healthcare-related expenses or lost revenue attributable to the COVID-19 pandemic. ERC distributions are refundable tax credits for 50% of qualified wages paid to employees during the pandemic. A company is eligible for the ERC if it has not received a Paycheck Protection Program loan under the Cares Act and (1) its operations have been fully or partially suspended because of COVID-19 or (2) its gross receipts in a calendar quarter in 2020 declined by more than 50% from the same period in 2019. At the time of applying for the ERC, Sema4 concluded that the eligibility requirements were met. However, subsequent to the filing of the application, Sema4’s revenue was revised due to a change in estimate as a result of finalizing its accounting records, which impacted the applicable periods and calculations for determining eligibility, and may no longer meet the eligibility requirements. As such, Sema4 has deferred the recognition of the ERC distribution and recorded the proceeds in other liabilities on the balance sheets for the year ended December 31, 2020. See Note 2 to Sema4’s financial statements contained elsewhere in this proxy statement.
Due to the high degree of uncertainty regarding the implementation of the CARES Act, the Consolidated Appropriations Act, 2021 and other stimulus legislation, and due to Sema4’s revenue revisions, there can be no assurance that the terms and conditions of the PRF, ERC or other relief programs will not change or be interpreted in ways that affect Sema4’s ability to comply with such terms and conditions in the future, which could affect its ability to retain such assistance. Sema4 will continue to monitor its compliance with the terms and conditions of the PRF, including demonstrating that the distributions received have been used for healthcare-related expenses or lost revenue attributable to COVID-19, and the ERC. If Sema4 is unable to comply with current or future terms and conditions, its ability to retain some or all of the distributions received may be impacted, and it may be subject to actions including payment recoupment, audits and inquiries by governmental authorities, and criminal, civil or administrative penalties.
Other companies or institutions may develop and market novel or improved technologies, which may make Sema4’s technologies less competitive or obsolete.
Sema4 operates in a rapidly evolving and highly competitive industry. There are a number of private and public companies that offer products or services or have announced that they are developing products or services that compete, or may one day compete, with its products or services. Some of Sema4’s current and potential competitors possess greater brand recognition, financial and other resources and development capabilities than it does. As the fields of genomic analysis and health information become more widely known to the public, Sema4 anticipates that competition will further increase. Sema4 expects to compete with a broad range of organizations in the U.S. and other countries that are engaged in the development, production and commercialization of genetic screening
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products, including women’s health and oncology screening products, health information services, and analytics, and data science services, and other diagnostic products. These competitors include:
•companies that offer clinical, research and data clinical services, molecular genetic testing and other clinical diagnostics, life science research and drug discovery services, data services and healthcare analytics, and consumer genetics products;
•academic and scientific institutions;
•governmental agencies; and
•public and private research organizations.
Sema4 may be unable to compete effectively against its competitors either because their products and services are superior or because they may have more expertise, experience, financial resources, or stronger business relationships. These competitors may have broader product lines and greater name recognition than Sema4 does. Furthermore, Sema4 must compete successfully in its existing markets, including women’s health and oncology, but also in any new markets it expands into. Even if Sema4 does develop new marketable products or services, its current and future competitors may develop products and services that are more commercially attractive than Sema4’s, and they may bring those products and services to market earlier or more effectively than it. If Sema4 is unable to compete successfully against current or future competitors, it may be unable to increase market acceptance for and sales of its tests and services, which could prevent it from increasing or sustaining its revenues or achieving sustained profitability.
Sema4 faces intense competition. If Sema4 does not continue to innovate and provide products and services that are useful to users, it may not remain competitive, which could harm its business and operating results.
Sema4’s business environment is rapidly evolving and intensely competitive. Sema4’s businesses face changing technologies, shifting provider and patient needs, and frequent introductions of rival products and services. To compete successfully, Sema4 must accurately anticipate technology developments and deliver innovative, relevant and useful products, services, and technologies in a timely manner. As Sema4’s businesses evolve, the competitive pressure to innovate will encompass a wider range of products and services. Sema4 must continue to invest significant resources in research and development, including through acquisitions and collaborations, joint ventures and partnerships, in order to enhance its current diagnostics and health information and data science technologies, and existing and new products and services based off these technologies.
Sema4 has many competitors in different industries. Sema4’s current and potential domestic and international competitors range from large and established companies to emerging start-ups in addition to academic and scientific institutions, and public and private research organizations. Some competitors have longer operating histories in various sectors. They can use their experience and resources in ways that could affect Sema4’s competitive position, including by making acquisitions, continuing to invest heavily in research and development and in talent, aggressively initiating intellectual property claims (whether or not meritorious), and continuing to compete aggressively for its customers and partners in the market for health information and data science products and services. Sema4’s competitors may be able to innovate and provide products and services faster than Sema4 can or may foresee the need for products and services before it does.
Sema4’s operating results may also suffer if its products and services are not responsive to the needs of its customers and partners. As technologies continue to develop, Sema4’s competitors may be able to offer products and services that are, or that are seen to be, substantially similar to or better than its current products and services. This may force Sema4 to compete in different ways and expend significant resources in order to remain competitive. If Sema4’s competitors are more successful than it in developing compelling products and services for or in attracting and retaining customers or partners in the market for health information and data science products and services, Sema4’s operating results could be harmed.
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If third-party payors, including managed care organizations, private health insurers and government health plans, do not provide adequate reimbursement for Sema4’s tests, or seek to amend or renegotiate their fee reimbursement schedules, or if Sema4 is unable to comply with their requirements for reimbursement, its commercial success could be negatively affected.
Sema4’s ability to increase the number of billable tests and its revenue therefrom will depend on its success in achieving reimbursement for its tests from third-party payors. Reimbursement by a payor may depend on a number of factors, including a payer’s determination that a test is appropriate, medically necessary, cost-effective and has received prior authorization. The commercial success of Sema4’s current and future products, if approved, will depend on the extent to which its customers receive coverage and adequate reimbursement from third-party payors, including as managed care organizations and government payers (e.g., Medicare and Medicaid).
Since each payer makes its own decision as to whether to establish a policy or enter into a contract to cover Sema4’s tests, as well as the amount it will reimburse for a test, seeking these approvals is a time-consuming and costly process. In addition, the determination by a payer to cover and the amount it will reimburse for Sema4’s tests will likely be made on an indication-by-indication basis and may consider Sema4’s billing practices and reimbursements from other payors and from Sema4’s patient billing programs. To date, Sema4 has obtained policy-level reimbursement approval or contractual reimbursement for some indications for its tests from most of the large commercial third-party payors in the United States, and the Centers for Medicare & Medicaid Services, or CMS, provides reimbursement for its multi-gene tests for hereditary breast and ovarian cancer-related disorders as well as other tests. Sema4 believes that establishing adequate reimbursement from Medicare is an important factor in gaining adoption from healthcare providers. Sema4’s claims for reimbursement from third-party payors may be denied upon submission, and Sema4 must appeal the claims. The appeals process is time consuming and expensive and may not result in payment. In cases where there is not a contracted rate for reimbursement, there is typically a greater coinsurance or copayment requirement from the patient, which may result in further delay or decreased likelihood of collection.
A significant portion of the payments for Sema4’s tests are paid or reimbursed under insurance programs with third-party payors. To contain reimbursement and utilization rates, third-party payors often attempt to, or do in fact, amend or renegotiate their fee reimbursement schedules. Loss of revenue by Sema4 caused by third-party payor cost containment efforts or an inability to negotiate satisfactory reimbursement rates could have a material adverse effect on Sema4’s revenue and results of operations.
Furthermore, in cases where Sema4 or its partners have established reimbursement rates with third-party payors, Sema4 faces additional challenges in complying with their procedural requirements for reimbursement. These requirements often vary from payer to payer and are reassessed by third party payors on a regular basis, and Sema4 has needed additional time and resources to comply with them. Sema4 has also experienced, and may continue to experience, delays in or denials of coverage if it does not adequately comply with these requirements. Sema4’s third-party payors have also requested, and in the future may request, audits of the amounts paid to it. Sema4 has been required to repay certain amounts to payers as a result of such audits, and Sema4 could be adversely affected if it is required to repay other payers for alleged overpayments due to lack of compliance with their reimbursement policies. In addition, Sema4 has experienced, and may continue to experience, delays in reimbursement when Sema4 transitions to being an in-network provider with a payer.
Sema4 expects to continue to focus its resources on increasing adoption of, and expanding coverage and reimbursement for, its current tests and any future tests it may develop or acquire. If Sema4 fails to expand and maintain broad adoption of, and coverage and reimbursement for, its tests, its ability to generate revenue could be harmed and its future prospects and its business could suffer.
Sema4 has limited experience with the development and commercialization of its databases and its health information and genomic platforms.
Sema4 has limited experience with the development or commercialization of clinical or research products in connection with the databases it manages and to which it has access, and its Centrellis and Traversa platforms. Sema4’s partners’ usage of an advanced machine learning engine for therapeutic decision-making are at an early
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stage of development and usage under current and proposed collaborations, and Sema4 is continuing to develop new processes that may support the development of new therapeutics applications such as the delivery of personalized clinically actional insights into clinical reports, clinical trial matching, real-world evidence trials, and clinical decision support, via an advanced programmable interface layer. Although Sema4’s partners have invested significant financial resources to develop and utilize new technologies to support preclinical studies and other early research and development activities, and provide general and administrative support for these operations, Sema4’s future success is dependent on its current and future partners’ ability to successfully derive actionable insights from the database and its platform, and its partners’ ability, where applicable, to obtain regulatory approval for new therapeutic solutions based off existing models or to obtain regulatory approval and marketing for, and to successfully commercialize, new therapeutics. The use of Sema4’s platform and the databases it manages and to which it has access for these purposes will require additional regulatory investments for Centrellis, such as “good practice” quality guidelines and regulations, or GxP, and data quality and integrity controls.
Ethical, legal and social concerns related to the use of genomic medicine and health information analysis could reduce demand for its tests.
Genomic medicine and health information analysis has raised ethical, legal and social issues regarding privacy rights and the appropriate uses of the resulting information. Domestic and international governmental and regulatory authorities could, for social or other purposes, such as data privacy, limit or regulate the use of health information or health information testing or prohibit testing for specific information derived from health information testing, including, for example, data on genetic predisposition to certain conditions, particularly for those that have no known cure. Similarly, these concerns may lead patients to refuse to use, or clinicians to be reluctant to order, genomic tests as part of health information assessment even if permissible, or lead patients to withhold or withdraw consent for Sema4’s use of their data. These and other ethical, legal and social concerns may limit market acceptance of its tests or services or reduce the potential markets for its tests, or services either of which could have an adverse effect on Sema4’s business, research, financial condition or results of operations.
If Sema4 fails to comply with federal and state laboratory licensing requirements or standards, Sema4 could lose the ability to perform its tests or experience disruptions to its business.
Sema4 is subject to Clinical Laboratory Improvement Amendments of 1988, or CLIA, a federal law that regulates clinical laboratories that perform testing on specimens derived from humans for the purpose of providing information for the diagnosis, prevention or treatment of disease. CLIA regulations establish specific standards with respect to personnel qualifications, facility administration, proficiency testing, quality control, quality assurance and inspections. CLIA certification is also required in order for Sema4 to be eligible to bill state and federal healthcare programs, as well as many private third-party payors, for its tests. Sema4 has current CLIA, CAP, and other certifications to conduct its tests at its laboratories in Connecticut. To renew these certifications, Sema4 is subject to survey and inspection on a regular basis and at the request of the certifying bodies. Moreover, CLIA inspectors may make random inspections of its clinical reference laboratories.
Sema4 would also be required to maintain in-state licenses if it were to conduct testing in other states. Several states require the licensure of out-of-state laboratories that accept specimens from certain states.
In addition to having laboratory licenses in New York, Sema4’s clinical reference laboratories are approved on test-specific bases for the tests they run as laboratory-developed tests, or LDTs, by the New York State Department of Health, or NYDOH. Other states may adopt similar licensure requirements in the future, which may require Sema4 to modify, delay or stop its operations in such jurisdictions. Sema4 may also be subject to regulation in foreign jurisdictions as it seeks to expand international utilization of its tests or such jurisdictions adopt new licensure requirements, which may require review of its tests in order to offer them or may have other limitations such as restrictions on the transport of samples necessary for it to perform its tests that may limit its ability to make its tests available outside of the United States. Complying with licensure requirements in new jurisdictions may be expensive, time-consuming, and subject Sema4 to significant and unanticipated delays.
Failure to comply with applicable clinical laboratory licensure requirements or standards may result in a range of enforcement actions, including license suspension, limitation, or revocation, directed plan of action, onsite
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monitoring, civil monetary penalties, criminal sanctions, and cancellation of the laboratory’s approval to receive Medicare and Medicaid payment for its services, as well as significant adverse publicity. Any sanction imposed under CLIA, its implementing regulations, or state or foreign laws or regulations governing clinical laboratory licensure, or Sema4’s failure to renew its CLIA certifications, a state or foreign license, or accreditation, could have a material adverse effect on its business, financial condition and results of operations. Even if Sema4 were able to bring its laboratory back into compliance, it could incur significant expenses and potentially lose revenue in doing so.
The College of American Pathologists, or CAP, maintains a clinical laboratory accreditation program. CAP asserts that its program is “designed to go well beyond regulatory compliance” and helps laboratories achieve the highest standards of excellence to positively impact patient care. While not required to operate a CLIA-certified laboratory, many private insurers require CAP accreditation as a condition to contracting with clinical laboratories to cover their tests. In addition, some countries outside the United States require CAP accreditation as a condition to permitting clinical laboratories to test samples taken from their citizens. Sema4 has CAP accreditations for its laboratories. Failure to maintain CAP accreditation could have a material adverse effect on the sales of its tests and the results of Sema4’s operations.
Risks Related to Sema4’s Business Model
Sema4 relies on highly skilled personnel in a broad array of disciplines and, if it is unable to hire, retain or motivate these individuals, or maintain its corporate culture, it may not be able to maintain the quality of its services or grow effectively.
Sema4’s performance, including its research and development programs and laboratory operations, largely depends on its continuing ability to identify, hire, develop, motivate and retain highly skilled personnel for all areas of its organization, including software developers, geneticists, biostatisticians, bioinformaticians, data scientists, certified laboratory directors and technicians and other scientific and technical personnel to process and interpret Sema4’s tests and related data. In addition, Sema4 may need to continue to expand its sales force with qualified and experienced personnel. Competition in Sema4’s industry for qualified employees is intense, and it may not be able to attract or retain qualified personnel in the future due to the competition for qualified personnel among life science and technology businesses as well as universities and public and private research institutions, particularly in the New York City and the tri-state area. Further, Sema4 may be unable to obtain the necessary visas for foreign personnel to work in the United States. In addition, Sema4’s compensation arrangements, such as its equity award programs, may not always be successful in attracting new employees and retaining and motivating its existing employees. If Sema4 is not able to attract and retain the necessary personnel to accomplish its business objectives, it may experience constraints that could adversely affect its ability to scale its business, support its research and development efforts and its clinical laboratories. Sema4 believes that its corporate culture fosters innovation, creativity and teamwork. However, as Sema4’s organization grows, it may find it increasingly difficult to maintain the beneficial aspects of its corporate culture. This could negatively impact Sema4’s ability to retain and attract employees and its future success.
The loss of any member or change in structure of Sema4’s senior management team could adversely affect its business.
Sema4’s success depends in large part upon the skills, experience and performance of members of its executive management team and others in key leadership positions. The efforts of these persons will be critical to Sema4 as it continues to develop its technologies and test processes and focus on scaling its business. If Sema4 were to lose one or more key executives, including its founder and CEO, Eric Schadt, it may experience difficulties in competing effectively, developing its tests and technologies and implementing its business strategy. Only certain Sema4’s executives have employment contracts, and the majority of Sema4’s employees are at-will, which means that either Sema4 or any employee may terminate their employment at any time or in the notice period set forth in an executive’s contract. Sema4 does not carry key person insurance for any of its executives or employees. In addition, Sema4 does not have a long-term retention agreement in place with its CEO. Furthermore, Sema4 competes against other leading companies in the diagnostics, health information, and data sciences markets for top talent. If such
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competitors offer better compensation or opportunities, there is no guarantee that Sema4 would be able to retain its key executives.
Sema4’s founder and CEO, Eric Schadt, and certain other Sema4 employees will continue to perform duties for or on behalf of Mount Sinai following the Business Combination.
Sema4’s founder CEO, Eric Schadt, and certain other employees of Sema4 will continue to perform duties for or on behalf of the Mount Sinai Health System, which refer to together with its related entities as Mount Sinai following the Business Combination. In the case of Dr. Schadt, in addition to serving as the CEO for and a director of Sema4, Dr. Schadt also serves as the Dean for Precision Medicine and a professor at Icahn School of Medicine at Mount Sinai, or ISMMS. Following the Business Combination, Sema4 expects Dr. Schadt to devote a substantial amount of time to the obligations of managing a public company while maintaining certain duties for Mount Sinai. Though Sema4 does not expect Dr. Schadt’s role as a CEO and a director of the post-combination company to conflict with his roles at Mount Sinai, there can be no guarantee that such conflicts will not occur in the future.
Sema4 may not be able to manage its future growth effectively, which could make it difficult to execute its business strategy.
Sema4’s expected future growth could create a strain on its organizational, administrative and operational infrastructure, including data and laboratory operations, quality control, customer service, marketing and sales, and management. Sema4 may not be able to maintain the quality of or expected turnaround times for its products or services, or satisfy customer demand as it grows. Sema4 may need to continue expanding its sales force to facilitate its growth, and it may have difficulties locating, recruiting, training and retaining sales personnel. Sema4’s ability to manage its growth effectively will require it to continue to improve its operational, financial and management controls, as well as its reporting systems and procedures. As Sema4 grows, any failure of its controls or interruption of its facilities or systems could have a negative impact on its business and financial operations. Sema4 plans to develop and launch new versions of its Centrellis and Traversa platforms and its core diagnostic products, which will affect a broad range of business processes and functional areas. The time and resources required to implement these new systems is uncertain, and failure to complete these activities in a timely and efficient manner could adversely affect Sema4’s operations. Future growth in Sema4’s business could also make it difficult for it to maintain its corporate culture. If Sema4 is unable to manage its growth effectively, it may be difficult for it to execute its business strategy and its business could be harmed.
Sema4 needs to scale its infrastructure in advance of demand for its products and services, and its failure to generate sufficient demand for its products and services would have a negative impact on its business and its ability to attain profitability.
Sema4’s success depends in large part on its ability to extend its market position, to provide customers with high-quality health reports and health information and data science services in a manner that differentiates it from its competitors, and to deploy technologies and achieve sufficient volumes to realize economies of scale. In order to execute its business model, Sema4 intends to continue to invest heavily in order to significantly scale its infrastructure, including its lab infrastructure and testing capacity and its information and computing systems, expand its commercial operations, customer service, billing and systems processes and enhance its internal quality assurance program. Sema4 will also need to enhance its capacity for data privacy management as it scales its infrastructure. Sema4 expects that much of this growth will be in advance of both demand for its products and services as well as its ability to diversify its offerings, including services related to Centrellis and Traversa and the databases it manages and to which it has access, and its ability to find appropriate partners through collaborations and acquisitions. Sema4’s current and future expense levels are to a large extent fixed and are largely based on its investment plans and its estimates of future revenue. Because the timing and amount of revenue from Sema4’s products and services are difficult to forecast, when revenue does not meet its expectations, Sema4 may not be able to adjust its spending promptly or reduce its spending to levels commensurate with its revenue. Even if Sema4 is able to successfully scale its infrastructure and operations while successfully diversifying its offering, it cannot assure you that demand for its products and services, including its Centrellis platform, will increase at levels consistent with the growth of its infrastructure. If Sema4 fails to generate demand commensurate with this growth or
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if Sema4 fails to scale its infrastructure sufficiently in advance of demand to successfully meet such demand, its business, prospects, financial condition and results of operations could be adversely affected.
International expansion of Sema4’s business could expose it to business, regulatory, political, operational, financial and economic risks associated with doing business outside of the United States.
When cleared, authorized or approved, Sema4 and its collaborators may market, sell, and distribute its products and services outside of the United States, and its business would be subject to risks associated with doing business outside of the United States, including an increase in its expenses and diversion of its management’s attention from the development of future products and services. Accordingly, Sema4’s business and financial results in the future could be adversely affected due to a variety of factors, including:
•multiple, conflicting and changing laws and regulations such as privacy, security and data use regulations, tax laws, export and import restrictions, economic sanctions and embargoes, employment laws, anticorruption laws, regulatory requirements, reimbursement or payer regimes and other governmental;
•approvals, permits and licenses;
•failure by Sema4, its collaborators or Sema4 distributors to obtain regulatory clearance, authorization or approval for the use of its products and services in various countries;
•additional potentially relevant third-party patent rights;
•complexities and difficulties in obtaining intellectual property protection and enforcing Sema4’s intellectual property;
•difficulties in staffing and managing foreign operations;
•complexities associated with managing multiple payer reimbursement regimes, government payers or patient self-pay systems;
•difficulties in negotiating favorable reimbursement negotiations with governmental authorities;
•logistics and regulations associated with shipping samples, including infrastructure conditions and transportation delays;
•limits in Sema4’s ability to penetrate international markets if it is not able to conduct its clinical diagnostic services locally;
•financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for Sema4’s products and services and exposure to foreign currency exchange rate fluctuations;
•natural disasters, political and economic instability, including wars, terrorism and political unrest, and outbreak of disease;
•boycotts, curtailment of trade and other business restrictions; and
•regulatory and compliance risks that relate to maintaining accurate information and control over sales and distributors’ activities that may fall within the purview of the Foreign Corrupt Practices Act of 1977, or FCPA, its books and records provisions, or its anti-bribery provisions or laws similar to the FCPA in other jurisdictions in which Sema4 may in the future operate, such as the United Kingdom’s Bribery Act of 2010 and anti-bribery requirements of member states in the European Union, or EU.
Any of these factors could significantly harm Sema4’s future international expansion and operations and, consequently, its revenue and results of operations.
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Unfavorable U.S. or global economic conditions could adversely affect Sema4’s business, financial condition or results of operations.
Sema4’s results of operations could be adversely affected by general conditions in the global economy and financial markets. A severe or prolonged economic downturn could result in a variety of risks to Sema4’s business, including weakened demand for its products and services and its ability to raise additional capital when needed on favorable terms, if at all. A weak or declining economy could strain Sema4’s collaborators and suppliers, possibly resulting in supply disruption, or cause delays in their payments to Sema4. Any of the foregoing could harm its business and Sema4 cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact its business.
Sema4 relies on a limited number of suppliers or, in some cases, single suppliers, for some of its laboratory instruments and materials and may not be able to find replacements or immediately transition to alternative suppliers or service providers.
Sema4 has sourced and will continue to source components of its diagnostic testing workflow, including sequencers and other laboratory equipment, reagents, lab supplies and other laboratory services and materials and related services, from third parties.
Sema4’s failure to maintain a continued supply of its sequencers and other laboratory equipment, reagents, lab supplies and other laboratory services and materials, along with the right to use certain hardware and software and related services, would adversely impact its business, financial condition, and results of operations. In particular, while Sema4 is seeking to validate its tests on additional sequencing platforms Sema4 has not, to date, validated viable alternative sequencing platform on which its testing could be run in a commercially viable manner. These efforts will require significant resources, expenditures and time and attention of management, and there is no guarantee that Sema4 will be successful in implementing any such sequencing platforms in a commercially sustainable way. Sema4 also cannot guarantee that it will appropriately prioritize or select alternative sequencing platforms on which to focus its efforts, in particular given its limited product and research and development resources and various business initiatives, which could result in increased costs and delayed timelines or otherwise impact its business and results of operations.
Because Sema4 relies on third-party manufacturers, Sema4 does not control the manufacture of these components, including whether such components will meet its quality control requirements, nor the ability of its suppliers to comply with applicable legal and regulatory requirements. In many cases, Sema4 suppliers are not contractually required to supply these components to the quality or performance standards that it requires. If the supply of components Sema4 receives does not meet its quality control or performance standards, it may not be able to use the components, or if it uses them not knowing that they are of inadequate quality, which occasionally occurs with respect to certain reagents, its tests may not work properly or at all, or may provide erroneous results, and Sema4 may be subject to significant delays caused by interruption in production or manufacturing or to lost revenue from such interruption or from spoiled tests. In addition, any natural or other disaster, acts of war or terrorism, shipping embargoes, labor unrest, political instability, outbreak of disease or similar events at Sema4’s third-party manufacturers' facilities that cause a loss of manufacturing capacity would heighten the risks that it faces.
In the event of any adverse developments with Sema4’s sole suppliers, or if any of its sole suppliers modifies any of the components they supply to it, its ability to supply its products may be interrupted, and obtaining substitute components could be difficult or require it to re-design or re-validate its products. Sema4’s failure to maintain a continued supply of components, or a supply that meets its quality control requirements, or changes to or termination of its agreements or inability to renew its agreements with these parties or enter into new agreements with other suppliers could result in the loss of access to important components of its tests and impact its test performance or affect its ability to perform its tests in a timely manner or at all, which could impair, delay or suspend its commercialization activities. In the event that Sema4 transitions to a new supplier from any of its sole suppliers, doing so could be time-consuming and expensive, may result in interruptions in its ability to supply its products to the market, could affect the performance of its tests or could require that Sema4 re-validate its affected tests using replacement equipment and supplies, which could delay the performance of its tests, impact diagnostic
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solutions and heath information derived from such tests, and result in increased costs. Any of these occurrences could have a material adverse effect on Sema4’s business, financial condition and results of operations.
Sema4 relies on a limited number of product and service providers for data infrastructure and analytics capabilities, and any disruption of, or interference with, its use of data and workflow services could adversely affect its business, financial condition, and results of operations, and Sema4 may not be able to find replacements or immediately transition to alternative products or service providers.
Sema4 currently relies upon third-party services for data storage and workflow management, including cloud storage solution providers, such as Amazon Web Services, or AWS, and Google Cloud Platform, or GCP. Sema4 relies on each of AWS and GCP features to complete several vital workflows in its health information and data science service delivery. To varying degrees some of those services are proprietary to how each platform performs in connection with Sema4’s current usage of the services. Further, Sema4 has also built several proprietary workflows with its vendor and partner Command Health where it maintains versions of developed software on such platforms.
Nearly all of Sema4’s data storage and analytics are conducted on, and the data and content it generates on its platforms are processed through, servers hosted by these providers, particularly AWS and GCP. Sema4 also relies on email service providers, bandwidth providers, internet service providers and mobile networks to deliver communications to patients, physicians and partners and to allow patients, physicians and its partners to access various offerings from its platforms. If Sema4’s third-party vendors are unable or unwilling to provide the services necessary to support its business, or if its agreements with such vendors are terminated, Sema4 operations could be significantly disrupted. Some of Sema4’s vendor agreements may be unilaterally terminated by the licensor for convenience, including with respect to AWS or GCP, and if such agreements are terminated, Sema4 may not be able to enter into similar relationships in the future on reasonable terms or at all.
Any damage to, or failure of, Sema4’s systems or the systems of its third-party data centers or its other third-party providers could result in interruptions to the availability or functionality of database and platforms. As a result, Sema4 could lose health information data and miss opportunities to acquire and retain patients, physicians and partners including health systems and pharmaceutical and biotech companies, which could result in decreased revenue. If for any reason Sema4’s arrangements with its data centers or third-party providers are terminated or interrupted, such termination or interruption could adversely affect its business, financial condition and results of operations. Sema4 exercises little control over these providers, which increases its vulnerability to problems with the services they provide. Sema4 could incur additional expense in arranging for new or redesigned facilities, technology, services and support. In addition, the failure of Sema4’s third-party data centers or any other third-party providers to meet Sema4’s capacity needs or any system failure as a result of reliance on third parties, including network, software or hardware failure, which causes a delay or interruption in the Sema4’s services and products, including its ability to handle existing or increased processing of data on its platforms, could have a material adverse effect on the Sema4’s business, revenues, operating results and financial condition.
Sema4’s current and future products and services may never achieve significant commercial market acceptance.
Sema4’s success depends on the market’s confidence that Sema4 can provide data-driven research and diagnostic products and services that improve clinical outcomes, lower healthcare costs and enable better product development by pharmaceutical and biotech, or Biopharma, companies. Failure of Sema4’s products and services, or those jointly developed with its collaborators, to perform as expected or to be updated to meet market demands could significantly impair its operating results and its reputation. Sema4 believes patients, health systems, clinicians, academic institutions and Biopharma companies are likely to be particularly sensitive to defects, errors, inaccuracies and delays with Sema4’s products and services. Furthermore, inadequate performance of these products or services may result in lower confidence in Sema4’s Centrellis platform in general.
Sema4 and its collaborators may not succeed in achieving significant commercial market acceptance for its current or future products and services due to a number of factors, including:
•Sema4’s ability to demonstrate the utility of its platforms including Centrellis and Traversa, and related products and services and their potential advantages over existing clinical AI technology, life sciences
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research, clinical diagnostic and drug discovery technologies to academic institutions, Biopharma companies and the medical community;
•Sema4’s ability, and that of its collaborators, to perform clinical trials or other research to gather adequate evidence and/or to secure and maintain FDA and other regulatory clearance authorization or approval for Sema4’s products or products developed based off Sema4’s platform;
•the agreement by third-party payors to reimburse Sema4’s products or services, the scope and extent of which will affect patients’ willingness or ability to pay for Sema4’s products or services and will likely heavily influence physicians’ decisions to recommend Sema4’s products or services;
•the rate of adoption of its platforms and related products and services by academic institutions, clinicians, patients, key opinion leaders, advocacy groups and Biopharma companies; and
•the impact of Sema4’s investments in product and services, and technological innovation and commercial growth.
Additionally, Sema4’s customers and collaborators, including Mount Sinai, may decide to decrease or discontinue their use of Sema4’s products and services due to changes in their research and development plans, failures in their clinical trials, financial constraints, the regulatory environment, negative publicity about its products and services, competing products or the reimbursement landscape, all of which are circumstances outside of its control. Sema4 may not be successful in addressing these or other factors that might affect the market acceptance of its products, services and technologies. Failure to achieve widespread market acceptance of Sema4’s platform and related products and services would materially harm Sema4’s business, financial condition and results of operations.
Sema4’s projections are subject to significant risks, assumptions, estimates and uncertainties, including assumptions regarding adoption of its products and services. As a result, Sema4’s projected revenues, market share, expenses and profitability may differ materially from its expectations in any given quarter or fiscal year.
Sema4 operates in rapidly changing and competitive industries and its projections are subject to the risks and assumptions made by Sema4’s management with respect to these industries. Operating results are difficult to forecast as they generally depend on Sema4’s assessment of the timing of adoption of its current and future products and services, which is uncertain. Furthermore, as Sema4 invests in the continued development of new businesses that have yet to achieve significant commercial success, whether because of competition or otherwise, Sema4 may not recover the often substantial up-front costs of developing and marketing those products and services or recover the opportunity cost of diverting management and financial resources away from other products or services. Additionally, Sema4’s business may be affected by reductions in customer or partner demand as a result of a number of factors which may be difficult to predict. Similarly, Sema4’s assumptions and expectations with respect to margins and the pricing of its products and services may not prove to be accurate as a result of competitive pressures or customer or partner demands. This may result in decreased revenue, and Sema4 may be unable to adopt measures in a timely manner to compensate for any unexpected shortfall in revenue. This inability could cause Sema4’s operating results in a given quarter or year to be higher or lower than expected. Any failure to achieve Sema4’s projected operating results could harm the trading price of the post-combination company’s securities and its financial position following the completion of the Business Combination.
Sema4 has estimated the sizes of the markets for its current and future products and services, and these markets may be smaller than it estimates.
Sema4’s estimates of the annual addressable markets for its current products and services and those under development are based on a number of internal and third-party estimates, including, without limitation, the number of patients who have developed one or more of a broad range of cancers, the number of individuals who are at a higher risk for developing one or more of a broad range of cancers, the number of individuals who have developed or are at a higher risk of developing certain disorders, the number of individuals with certain infectious diseases. The estimates also depend on whether Sema4 or its collaborators are able to engage, diagnose or treat patients through or using Sema4’s products and services, the number of potential clinical tests utilized per treatment course per patient, the ongoing engagement by patients, physicians and health systems on its platforms, and the assumed prices at
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which Sema4 can sell its current and future products and services for markets that have not been established. While Sema4 believes its assumptions and the data underlying its estimates are reasonable, these assumptions and estimates may not be correct and the conditions supporting its assumptions or estimates may change at any time, thereby reducing the predictive accuracy of these underlying factors. As a result, Sema4’s estimates of the annual addressable market for its current or future products and services may prove to be incorrect. If the actual number of patients who would benefit from Sema4’s products or services, the price at which it can sell future products and services or the annual addressable market for its products or services is smaller than Sema4 has estimated, it may impair its sales growth and have an adverse impact on its business.
Uncertainty in the development and commercialization of Sema4’s enhanced or new tests or services could materially adversely affect its business, financial condition and results of operations.
Sema4’s success will depend in part on its ability to effectively introduce enhanced or new offerings. The focus of its research and development efforts has expanded beyond its current products and services, focused substantially on women’s health and oncology, as Sema4 is now also applying its expertise in processing and analyzing new areas, such as rare diseases. In recent years Sema4 has developed and/or launched several new products or enhanced versions of existing products, including products leveraging alternative sequencing technologies, and Sema4 expects to continue its efforts in all of these areas and more. The development and launch of enhanced or new tests requires the completion of certain clinical development and commercialization activities that are complex, costly, time-intensive and uncertain, and requires Sema4 to accurately anticipate patients', clinicians', payors' and other counterparties' attitudes and needs as well as emerging technology and industry trends. This process is conducted in various stages, and each stage presents the risk that Sema4 will not achieve its goals.
Sema4 has relatively limited experience developing and commercializing products and services outside of the fields of women’s health and oncology diagnostics, and it may not be successful in its current or future efforts to do so. Sema4 also has limited experience forecasting its future financial performance from its new products and services, and its actual results may fall below its financial guidance or other projections, or the expectations of analysts or investors, which, following the Business Combination, could cause the price of the post-combination company’s common stock and warrants to decline. Sema4 may experience research and development, regulatory, marketing and other difficulties that could delay or prevent its introduction of enhanced or new tests and result in increased costs and the diversion of management's attention and resources from other business matters, such as from its current product and service offerings, which currently represent the significant majority of its current revenues. For example, any tests that Sema4 may enhance or develop may not prove to be clinically effective in clinical trials or commercially, or may not meet its desired target product profile, be offered at acceptable cost and with the sensitivity, specificity and other test performance metrics necessary to address the relevant clinical need or commercial opportunity; Sema4’s test performance in commercial experience may be inconsistent with its validation or other clinical data; Sema4 may not be successful in achieving market awareness and demand, whether through its own sales and marketing operations or through collaborative arrangements; healthcare providers may not order or use, or third-party payors may not reimburse for, any tests that Sema4 may enhance or develop; or Sema4 may otherwise have to abandon a test or service in which Sema4 has invested substantial resources. For example, Sema4 is subject to the risk that the biological characteristics of the genetic mutations Sema4 seeks to target, and upon which its technologies rely, are uncertain and difficult to predict. Sema4 may also experience unforeseen difficulties when implementing updates to its processes.
Sema4 cannot assure you that it can successfully complete the development of any new or enhanced product, or that Sema4 can establish or maintain the collaborative relationships that may be essential to its collaborators’ goals, including clinical development or commercialization efforts. For example, clinical development requires large numbers of patient specimens and, for certain products, may require large, prospective, and controlled clinical trials. Sema4 may not be able to identify and help enroll patients or collect a sufficient amount of appropriate health data in a timely manner; or it may experience delays during data analysis process due to slower than anticipated supplies of patient data, or due to changes in study design or inputs, or other unforeseen circumstances; or Sema4 or its collaborators may be unable to afford or manage the large-sized clinical trials that some of its planned future products may require. Further, the publication of clinical data in peer-reviewed journals is a crucial step in commercializing and obtaining reimbursement for certain diagnostic solutions such as the ones offered by Sema4, and its inability to control when, if ever, results are published may delay or limit Sema4’s ability to derive sufficient
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revenues from any diagnostic solution that is the subject of or component in a study. Peer-reviewed publications regarding Sema4’s products may be limited by many factors, including delays in the completion of, poor design of, or lack of compelling data from, clinical studies, as well as delays in the review, acceptance and publication process. If Sema4’s diagnostic solutions or the technology underlying its current and future diagnostic solutions do not receive sufficient favorable exposure in peer-reviewed publications, the rate of clinician adoption of Sema4’s diagnostic solutions and positive reimbursement coverage determinations for its diagnostic solutions could be negatively affected.
In addition, development of the data necessary to obtain regulatory clearance and approval of tests is time-consuming and carries with it the risk of not yielding the desired results. The performance achieved in published studies may not be repeated in later studies that may be required to obtain premarket clearance or approval from the Food and Drug Administration, or FDA. Limited results from earlier-stage verification studies may not predict results from studies in larger numbers of subjects drawn from more diverse populations over longer periods of time. Unfavorable results from ongoing preclinical and clinical studies may delay, limit or prevent regulatory approvals or clearances or commercialization of Sema4’s product candidates, or could result in delays, modifications or abandonment of ongoing analytical or future clinical studies, or abandonment of a product development program, any of which could have a material adverse effect on its business, operating results or financial condition.
These and other factors beyond Sema4’s control could result in delays or other difficulties in the research and development, approval, production, launch, marketing or distribution of enhanced or new tests and could adversely affect Sema4’s competitive position and results of operations.
Sema4 currently uses, and in the future expects to increase its use of, information and rights from customers, strategic partners, and collaborators for several aspects of its operations, and if Sema4 cannot maintain current and enter new relationships with these parties with adequate access and authorization to such information, its business will suffer.
Accessing, combining, curating, and analyzing health information, including longitudinal patient medical history data and genetic data, are core features of the Centrellis platform and key elements of Sema4’s long term business model. The regulatory landscape around the storage, processing and deidentification of genetic data is evolving globally and greatly impacts the ability of Sema4, its strategic partners and collaborators to process and use the data in connection with its products and services.
Sema4 has limited resources to conduct its health information services, data analysis, life sciences research, clinical diagnostics and drug discovery operations and has not yet fully established infrastructure for sales, marketing or distribution in connection with its products and services. Accordingly, Sema4 has entered into service and collaboration agreements under which its partners, including health systems, have provided, and may in the future provide, funding, data access, and other resources for developing and potentially commercializing Sema4’s products and services. These collaborations may result in Sema4 incurring significant expenses in pursuit of potential products and services, and Sema4 may not be successful in identifying, developing or commercializing any potential products or services.
Sema4’s future success depends in part on its ability to maintain and grow its existing relationships, including with Mount Sinai, and to establish new relationships. Many factors may impact the success of such collaborations, including Sema4’s ability to perform its obligations, its collaborators’ satisfaction with its products and services, its collaborators’ performance of their obligations to Sema4, its collaborators’ internal priorities, resource allocation decisions and competitive opportunities, the ability to obtain regulatory approvals, disagreements with collaborators, the costs required of either party to the collaboration and related financing needs, and operating, legal and other risks in any relevant jurisdiction. Sema4’s ability to support such collaborations may also depend on factors outside of its control including the willingness of patients to engage with Sema4 and share their data, societal perspectives on privacy, and the willingness of health systems to establish collaborations, relationships and programs utilizing their data, all of which may impact the utility of these databases and the insights Sema4 will be able to generate from expanding datasets. In addition to reducing Sema4’s revenue or delaying the development of its future products and services, the loss of one or more of these relationships may reduce Sema4’s access to research, longitudinal patient health data, clinical trials or computing technologies that facilitate the collection and incorporation of new
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information into the databases it manages and to which it has access. All of the risks relating to product and service development, regulatory clearance, authorization or approval and commercialization described herein apply to Sema4 derivatively through the activities of its collaborators. Sema4 engages in conversations with companies regarding potential collaborations on an ongoing basis. These conversations may not result in a commercial agreement. Even if an agreement is reached, the resulting relationship may not be successful, and any products and services developed as part of the collaboration may not produce successful outcomes. Speculation in the industry about Sema4’s existing or potential collaborations can be a catalyst for adverse speculation about it, or its products or services, which can adversely affect its reputation and its business.
If Sema4’s products and services do not perform as expected, it may not realize the expected benefits of such products and services.
The success of Sema4’s products depends on the market’s confidence that it can provide reliable products and services that enable high quality diagnostic testing and health information services with high sensitivity and specificity and short turnaround times. There is no guarantee that the accuracy and reproducibility Sema4 has demonstrated to date will continue as its product deliveries increase and its product and service portfolio expands.
Sema4’s products and services use a number of complex and sophisticated biochemical and bioinformatics processes, many of which are highly sensitive to external factors. An operational, technological or other failure in one of these complex processes or fluctuations in external variables may result in sensitivity or specificity rates that are lower than Sema4 anticipates or result in longer than expected turnaround times. In addition, labs are required to validate their processes before using Sema4 products for clinical purposes. These validations are outside of Sema4’s control. If Sema4’s products do not perform, or are perceived to not have performed, as expected or favorably in it to competitive products, its consolidated operating results, reputation, and business will suffer, and Sema4 may also be subject to legal claims arising from product limitations, errors, or inaccuracies.
If Sema4’s sales and development or other collaborations and commercial relationships are not successful and it is not able to offset the resulting impact through its own efforts or through agreements with new partners, its commercialization activities may be impaired and its financial results could be adversely affected.
Part of Sema4’s business strategy is to develop relationships with health systems, biopharma companies, and other partners to utilize its products and to provide access to data. Developing and commercializing products with third parties reduces Sema4’s control over such development and commercialization efforts and subjects it to the various risks inherent in a joint effort with a third party, such as delays, operational issues, technical difficulties and other contingencies outside of its influence or control. The financial condition of these third parties could weaken, or they could terminate their relationship with Sema4 and/or stop sharing data or other information; reduce their marketing efforts relating to Sema4’s products; develop and commercialize, or otherwise utilize competing products in addition to or in lieu of Sema4’s tests; merge with or be acquired by a competitor of Sema4 or a company that chooses to de-prioritize the efforts to utilize Sema4’s products or provide Sema4 with adequate data; or otherwise breach their agreements with Sema4. Further, Sema4 must expend resources to operationalize its existing collaborations with its health system partners, which requires substantial effort in areas such as integrations for testing workflow, EMR, consents, marketing, and billing. To the extent, Sema4 is not successful at operationalizing existing collaborations with health partners, it may not be able to further improve or pursue new agreements with additional partners. Furthermore, Sema4’s partners may misappropriate Sema4’s trade secrets or use Sema4’s proprietary information in such a way as to expose Sema4 to litigation and potential liability; and Sema4’s compliance risk may increase to the extent that Sema4 is responsible for its partners' activities. Disagreements or disputes with Sema4’s health systems and other partners, including disagreements over customers, proprietary or other rights or its or their compliance with financial or other contractual obligations, might cause delays or impair the development or commercialization of Sema4’s products, services, and technologies, lead to additional responsibilities for Sema4 with respect to new products, services and technologies, or result in litigation or arbitration, any of which would divert management attention and resources and be time-consuming and expensive. As is typical for companies in Sema4’s industry, it is continually evaluating and pursuing various strategic or commercial relationships, some of which may, following the Business Combination, involve the sale and issuance of the post-combination company’s common stock, which could result in additional dilution of the percentage ownership of its stockholders and could cause the price of its common stock and warrants to decline.
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If Sema4’s relationships are not successful, its ability to develop and improve of products, services and technologies, and to successfully execute its commercial strategy regarding such products, services and technologies, could be compromised.
If Sema4 is unable to deploy and maintain effective sales, marketing and medical affairs capabilities, it will have difficulty achieving market awareness and selling its products and services.
To achieve commercial success for its tests and its future products and services, Sema4 must continue to develop and grow its sales, marketing and medical affairs organizations to effectively explain to healthcare providers the reliability, effectiveness and benefits of its current and future products and services as compared to alternatives. Sema4 may not be able to successfully manage its dispersed or inside sales forces or its sales force may not be effective. Because of the competition for their services, Sema4 may be unable to hire, partner with or retain additional qualified sales representatives or marketing or medical affairs personnel, either as its employees or independent contractors or through independent sales or other third-party organizations. Market competition for commercial, marketing and medical affairs talent is significant, and Sema4 may not be able to hire or retain such talent on commercially reasonable terms, if at all.
Establishing and maintaining sales, marketing and medical affairs capabilities will be expensive and time-consuming. Sema4’s expenses associated with maintaining its sales force may be disproportionate to the revenues it may be able to generate on sales of the certain tests or any future products or services.
Sema4 may never become profitable.
Sema4 has incurred losses since it was formed and expects to continue to generate significant operating losses for the foreseeable future. As of December 31, 2020, Sema4 has an accumulated deficit of approximately $328.9 million. Sema4 expects to continue investing significantly toward development and commercialization of its health information technology and other products and services. If Sema4’s revenue does not grow significantly, it will not be profitable. Sema4 cannot be certain that the revenue from the sale of any products or services based on its technologies will be sufficient to make it profitable.
Sema4’s operating results could be subject to significant fluctuation, which, following the Business Combination, could increase the volatility of the post-combination company’s stock and warrant price and cause losses to its stockholders.
Sema4’s revenues and results of operations may fluctuate significantly, depending on a variety of factors, including the following:
•Sema4’s success in marketing and selling, and changes in demand for, its tests, and the level of reimbursement and collection obtained for such tests;
•seasonal and environmental variations affecting healthcare provider recommendations for Sema4’s tests and patient compliance with healthcare provider recommendations, including without limitation holidays, weather events, and circumstances such as the outbreak of coronavirus or influenza that may limit patient access to medical practices for diagnostic tests and preventive services;
•Sema4’s success in collecting payments from third-party payors, patients and collaborative partners, variation in the timing of these payments and recognition of these payments as revenues;
•the pricing of its tests, including potential changes in CMS or other reimbursement rates;
•circumstances affecting Sema4’s ability to provide its tests, including weather events, supply shortages, or regulatory or other circumstances that adversely affect its ability to manufacture its tests or process tests in its clinical laboratories;
•circumstances affecting Sema4’s ability to provide health information and data science services to biopharma partners, including software or hardware failures, insufficient capacity, regulatory changes or other circumstances that adversely affect the ability of Sema4 to deliver these services;
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•fluctuations in the amount and timing of Sema4’s selling and marketing costs and its ability to manage costs and expenses and effectively implement its business;
•Sema4’s research and development activities, including the timing of clinical trials; and
•Sema4's ability to collect, use, and commercialize data in a changing regulatory environment at a time when the public is growing increasingly concerned about privacy.
Sema4’s revenue growth rate could decline over time, and it may experience downward pressure on its operating margins in the future.
Sema4’s revenue growth rate could decline over time as a result of a number of factors, including increasing competition and the continued expansion of its business into a variety of new fields. Changes in geographic mix and product and service mix and an increasing competition for tests may also affect its revenue growth rate. Sema4 may also experience a decline in its revenue growth rate as its revenues increase to higher levels, if there is a decrease in the rate of adoption of its products, services, and technologies, among other factors.
In addition to a decline in its revenue growth rate, Sema4 may also experience downward pressure on its gross operating margins resulting from a variety of factors, such as the continued expansion of its business into new fields, including new products and services, as well as significant investments in new areas, all of which may have margins lower than those that Sema4 generates from testing. Sema4 may also experience downward pressure on its gross operating margins from increasing competition and increased costs for many aspects of its business. Sema4 may also pay increased fees to its partners as well as increased acquisition costs. Sema4 may also face an increase in infrastructure costs, supporting other businesses. Additionally, Sema4’s expenditures to promote new products and services or to distribute certain products and services or increased investment in its innovation efforts across its Centrellis platform may affect its operating margins.
Due to these factors and the evolving nature of its business, Sema4’s historical projected revenue growth rate and historical gross operating margins may not be indicative of its future performance.
Sema4 may need to raise additional capital to fund its existing operations, develop additional products and services, commercialize new products and services or expand its operations.
Sema4 has incurred net losses and negative cash flows since its inception and expects to continue generate significant operating losses for the foreseeable future. As of May 6, 2021, the issuance date of Sema4’s financial statements included elsewhere in this proxy statement, Sema4’s operating expenses and capital expenditure requirements over the next 12 months were in excess of Sema4’s existing cash and cash equivalents, and, as a result, the audit report and opinion of Sema4’s independent registered public accounting firm contained in Sema4’s financial statements includes an explanatory paragraph that describes conditions that raise substantial doubt about Sema4’s ability to continue as a going concern. Although Sema4 expects the funding to be received upon the completion of the Business Combination and the PIPE Investment to address the substantial doubt about Sema4’s ability to continue as a going concern, following the Business Combination, the post-combination company may also seek to sell common or preferred equity or convertible debt securities, enter into a credit facility or another form of third-party funding or seek other debt financing.
Following the Business Combination, the post-combination company may also consider raising additional capital in the future to expand Sema4’s business, to pursue strategic investments, to take advantage of financing opportunities or for other reasons, including to:
•increase Sema4’s sales and marketing efforts to drive market adoption of its current and future products and services;
•fund development efforts for Sema4’s current and future products and services;
•expand Sema4’s products and services into other disease indications and clinical applications;
•acquire, license or invest in technologies;
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•acquire or invest in complementary businesses or assets; and
•finance capital expenditures and general and administrative expenses.
Sema4’s present and future funding requirements will depend on many factors, including:
•Sema4’s ability to achieve revenue growth;
•Sema4’s rate of progress in establishing payer coverage and reimbursement arrangements with commercial third-party payors and government payers;
•the cost of expanding Sema4’s laboratory operations and offerings, including its sales and marketing efforts;
•Sema4’s rate of progress in, and cost of the sales and marketing activities associated with, establishing adoption of its Centrellis solution;
•Sema4’s rate of progress in, and cost of research and development activities associated with, products and services in research and early development;
•the effect of competing technological, product and market developments;
•costs related to international expansion; and
•the potential cost of and delays in product development as a result of any regulatory oversight applicable to Sema4’s products and services.
The various ways the post-combination company could raise additional capital following the Business Combination carry potential risks. If the post-combination company raises funds by issuing equity securities, dilution to its stockholders could result. Any preferred equity securities issued also could provide for rights, preferences or privileges senior to those of holders of its common stock. If the post-combination company raises funds by issuing debt securities, those debt securities would have rights, preferences and privileges senior to those of holders of its common stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on Sema4’s operations. If Sema4 raises funds through collaborations and licensing arrangements, Sema4 might be required to relinquish significant rights to its technologies or products and services or grant licenses on terms that are not favorable to it.
Sema4 expects to make significant investments in its continued research and development of new products and services, which may not be successful.
Sema4 is seeking to leverage and deploy its Centrellis and Traversa platforms to develop a pipeline of future disease-specific research, diagnostic and therapeutic products and services. For example, Sema4 is attempting to extend current products into additional indications and sample types, and it is developing its population health program, and its pharmacogenomics solutions with a view toward advancing the development of tests designed to identify genetic variants for drug response that are associated with medically actionable and clinically relevant data to make more informed treatment decisions. Sema4 expects to incur significant expenses to advance these development efforts, but they may not be successful.
Developing new products and services is a speculative and risky endeavor. Products or services that initially show promise may fail to achieve the desired results or may not achieve acceptable levels of analytical accuracy or clinical utility. Sema4 may need to alter its products in development and repeat analysis or clinical studies before it identifies a potentially successful product or service. Product development is expensive, may take years to complete and can have uncertain outcomes. Failure can occur at any stage of the development. If, after development, a product or service appears successful, Sema4 or its collaborators may, depending on the nature of the product or service, still need to obtain FDA and other regulatory clearances, authorizations or approvals before Sema4 can market it. In the case of clinical products, the FDA’s clearance, authorization or approval pathways are likely to involve significant time, as well as additional research, development and clinical study expenditures. The FDA may not clear, authorize
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or approve any future product or service Sema4 develops. Even if Sema4 develops a product or service that receives regulatory clearance, authorization or approval, or succeeds in initial product testing, it or its collaborators would need to commit substantial resources to commercialize, sell and market it before it could be profitable, and the product or service may never be commercially successful. Additionally, development of any product or service may be disrupted or made less viable by the development of competing products or services.
New potential products and services may fail at any stage of development or recalled after commercialization and if Sema4 determines that any of its current or future products or services are unlikely to succeed, it may abandon them without any return on its investment. If Sema4 is unsuccessful in developing additional products or services, its potential for growth may be impaired.
Sema4 has identified material weaknesses, some of which have a pervasive effect across the organization, and may identify additional material weaknesses or significant deficiencies, in its internal controls over financial reporting. Sema4’s failure to remedy these matters could result in a material misstatement of its financial statements.
In the course of preparing its financial statements for 2020, 2019 and 2018, Sema4 identified material weaknesses in its internal control over financial reporting which could, if not remediated, result in material misstatements in our financial statements as of December 31, 2020. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified related to the fact that Sema4 did not design and maintain accounting policies, procedures and controls to ensure complete, accurate and timely financial reporting in accordance with U.S. GAAP. Specifically, the material weaknesses identified included the following:
•Sema4 did not design and maintain accounting policies, processes and controls to analyze, account for and report its revenue arrangements in accordance with ASC 606, Revenue from Contracts with Customers, and ASC 605, Revenue Recognition.
•Sema4 did not design and maintain formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures, including controls over the preparation and review of account reconciliations and journal entries; the accounting for cost capitalization policies in accordance with ASC 330, Inventory, and ASC 350-40, Intangibles – Goodwill and Other – Internal-Use Software; and the application of ASC 840, Leases.
•Sema4 had not developed and effectively communicated to its employees its accounting policies and procedures, which resulted in inconsistent practices. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.
•Sema4’s accounting and operating systems lacked controls over access, and program change management that are needed to ensure access to financial data is adequately restricted to appropriate personnel.
•Sema4 does not have sufficient, qualified finance and accounting staff with the appropriate U.S. GAAP technical expertise to identify, evaluate and account for accounting and financial reporting, and effectively design and implement systems and processes that allow for the timely production of accurate financial information in accordance with internal financial reporting timelines, commensurate with Sema4’s size and the nature and complexity of its operations. As a result, Sema4 did not design and maintain formal accounting policies, processes and controls related to complex transactions necessary for an effective financial reporting process.
Sema4’s management is preparing a remediation plan that is expected to include policies and procedures to support internal control over financial reporting for a public company as well as supplementing the accounting and finance function with robust technical accounting and financial reporting experience and training. However, Sema4 cannot guarantee that the steps it has taken or may subsequently take have been or will be sufficient to remediate the material weaknesses or ensure that Sema4’s internal controls are effective.
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Furthermore, as a public company, the Company is required to comply with certain rules and requirements related to its disclosure controls and procedures and its internal control over financial reporting. Following the completion of the Business Combination, any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm the post-combination company’s operating results or cause the post-combination company to fail to meet its reporting obligations and may result in a restatement of the post-combination company’s financial statements for prior periods. For more information, see “Risk Factors—Risks Related to the Company and the Business Combination—Our internal controls over financial reporting may not be effective and our independent registered public accounting firm may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation.”
Sema4’s ability to use its net operating loss carry forwards and certain other tax attributes may be limited.
At December 31, 2020, Sema4’s total gross deferred tax assets were $60.6 million. Due to Sema4’s lack of earnings history, future deductible temporary differences related to compensation and uncertainties surrounding its ability to generate future taxable income, its net deferred tax assets have been fully offset by a valuation allowance. The deferred tax assets are primarily comprised of federal and state tax net operating losses and tax credit carryforwards, and tax deductible temporary differences.
Furthermore, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards, or NOLs, and other pre-change tax attributes (such as research tax credits) to offset its future taxable income may be limited. In general, an “ownership change” occurs if there is a cumulative change in its ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period. Sema4’s existing NOLs and tax credit carryovers may be subject to limitations arising from previous ownership changes, and if it undergoes one or more ownership changes in connection with completed acquisitions, including the Business Combination, or other future transactions in Sema4’s stock, its ability to utilize NOLs and tax credit carryovers could be further limited by Section 382 of the Internal Revenue Code. As a result, if Sema4 earns future taxable income, its ability to use its pre-change net operating loss and tax credit carryforwards to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to it. In addition, the Tax Cuts and Jobs Act limits the deduction for NOLs to 80% of current year taxable income and eliminates NOL carrybacks. Further, there may also be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state liability.
Risks Related to Sema4’s Key Relationships
Sema4 relies on third-party laboratories to perform certain elements of its service offerings.
A limited but meaningful portion of Sema4’s genomic analysis services is performed by third-party laboratories and service providers, while the remaining portion is performed in Sema4’s laboratories. The third-party laboratories are subject to contractual obligations to perform these services for Sema4, but are not otherwise under its control. Sema4 therefore does not control the capacity and quality control efforts of these third-party laboratories other than through its ability to enforce contractual obligations on volume and quality systems, and it has no control over such laboratories’ compliance with applicable legal and regulatory requirements. Sema4 also has no control over the timeliness of such laboratories’ performance of their obligations to it, and the third-party laboratories that Sema4 has contracted with have in the past had, and occasionally continue to have, issues with delivering results to it or resolving issues with Sema4 within the time frames it expected or established in its contracts with them, which sometimes results in longer than expected turnaround times for, or negatively impacts the performance of, these tests and services. In the event of any adverse developments with these third-party laboratories or their ability to perform their obligations in a timely manner and in accordance with the standards that Sema4 and its customers expect, its ability to service customers may be delayed, interrupted or otherwise adversely affected, which could result in a loss of customers and harm to its reputation. Furthermore, when these issues arise, Sema4 has had to expend time, management’s attention and other resources to address and remedy such issues.
Sema4 may not have sufficient alternative backup if one or more of the third-party laboratories that it contracts with are unable to satisfy their obligations to it with sufficient performance, quality and timeliness, including as a
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result of the COVID-19 pandemic. Any natural or other disaster, acts of war or terrorism, shipping embargoes, labor unrest, political instability, outbreaks of disease or similar events at one or more of these third-party laboratories’ facilities that causes a loss of capacity would heighten the risks that Sema4 faces. Changes to or termination of agreements or inability to renew agreements with these third-party laboratories or enter into new agreements with other laboratories that are able to perform such portions of Sema4’s service offerings could impair, delay or suspend its efforts to market and sell these services. In addition, certain third-party payors, including some state Medicaid payers, that Sema4 is under contract with may take the position that sending out testing to third-party laboratories and billing for such tests is contrary to the terms of its provider agreement and may refuse to pay Sema4 for the testing. If any of these events occur, Sema4’s business, financial condition and results of operations could suffer. Further, some state laws impose anti-markup restrictions that prevent an entity from realizing a profit margin on outsourced testing. If Sema4 or its subsidiaries are unable to markup outsourced testing, its revenues and operating margins may suffer.
Sema4 relies on Mount Sinai, a related party, and its clinicians for a portion of its test volume in connection with its diagnostic solutions and for data programs, and Sema4 has entered into certain other arrangements with Mount Sinai.
Sema4 relies on Mount Sinai, which is a related party, and its clinicians for a portion of its test volumes in connection with its diagnostic solutions and for a significant portion of the de-identified clinical records in Sema4’s databases. In 2020, orders from Mount Sinai clinicians accounted for 5.5% of Sema4’s total test volume, down from 12.8% in 2019. In addition, Sema4 subleases certain facilities from Mount Sinai, Sema4 provides certain research and data services to Mount Sinai, and Sema4 and Mount Sinai have entered into certain collaborative and commercial arrangements. Furthermore, Sema4 may in the future enter into other contracts for services or other engagements with Mount Sinai. See “Certain Relationships and Related Party Transactions — Sema4’s Related Party Transactions”
Mount Sinai is primarily made up of not-for-profit hospitals, a medical and graduate school and employed clinicians. The charitable missions of the Mount Sinai entities include patient care, teaching and research. As such, the Mount Sinai entities are required to deal with Sema4 strictly on an arms-length, fair market value basis, and the interests of Mount Sinai may not necessarily be aligned with the interests of Sema4 or its other stockholders.
Sema4 is subject to risks as a result of its reliance on Mount Sinai, and if Sema4’s transactions and relationship with Mount Sinai were to cease, Sema4’s business could be disrupted and it could have a material adverse effect on Sema4’s business, research, financial condition and results of operations.
In addition, following the completion of the Business Combination, ISMMS is expected to be significant stockholder in the post-combination company. Following the expiration of the lock-up period under the ISMMS Lock-Up Agreement, ISMMS may choose to dispose of some or all of the shares of common stock held by it. Any disposal of shares of common stock by ISMMS, or the perception that these sales could occur, could cause the market price of the post-combination company’s stock or warrants to decline.
Sema4 relies on commercial courier delivery services to transport samples to its facilities in a timely and cost-efficient manner and if these delivery services are disrupted, its business could be harmed.
Sema4’s core business depends on its ability to quickly and reliably deliver test results to its customers. Sema4 typically receives blood, saliva, or tissue samples for analysis at its laboratory facilities within days of collection from the patient. Disruptions and errors in these delivery service and accessioning errors and breaches, whether due to error by the courier service, labor disruptions, bad weather, natural disaster, terrorist acts or threats, outbreaks of disease or for other reasons, could adversely affect specimen integrity, Sema4’s ability to process or store samples in a timely manner and to service its customers, and ultimately its reputation and its business. In addition, if Sema4 is unable to continue to obtain expedited delivery services on commercially reasonable terms, its operating results may be adversely affected.
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Sema4’s Risks Related to Legal, Regulatory and Compliance
Sema4 may be subject to increased compliance risks as a result of its rapid growth, including its dependence on its sales, marketing and billing efforts.
Sema4 has had to expand its training and compliance efforts in line with its increasing reliance on personnel in its sales, marketing and billing functions, and its expansion of these functions in line with the overall growth in its business. Sema4 continues to monitor its personnel, but Sema4 has in the past experienced, and may in the future experience, situations in which employees fail to strictly adhere to its policies. In addition, sales and marketing activities in the healthcare space are subject to various rules and regulations. Moreover, Sema4’s billing and marketing messaging can be complex and nuanced, and there may be errors or misunderstandings in its employees' communication of such messaging. Furthermore, Sema4 utilizes text messaging, email, phone calls and other similar methods to communicate with patients who are existing or potential users of its products for various business purposes. These activities subject it to laws and regulations relating to communications with consumers, such as the CAN-SPAM Act and the Telephone Consumer Protection Act, violations of which could subject Sema4 to claims by consumers, who may seek actual or statutory damages, which could be material in the aggregate. As Sema4 continues to scale up its sales and marketing efforts in line with the growth in its business, in particular its increased pace of product launches as well as further geographical expansion, Sema4 face an increased need to continuously monitor and improve its policies, processes and procedures to maintain compliance with a growing number and variety of laws and regulations, including with respect to consumer marketing. To the extent that there is any violation, whether actual, perceived or alleged, of its policies or applicable laws and regulations, Sema4 may incur additional training and compliance costs, may receive inquiries from third-party payors or other third parties, or be held liable or otherwise responsible for such acts of non-compliance. Any of the foregoing could adversely affect Sema4’s cash flow and financial condition.
If Sema4 uses hazardous materials in a manner that causes injury, it could be liable for resulting damages.
Sema4’s activities currently require the use of hazardous chemicals and biological material. Sema4 cannot eliminate the risk of accidental contamination or injury to employees or third parties from the use, storage, handling or disposal of these materials. In the event of contamination or injury, Sema4 could be held liable for any resulting damages, and any liability could exceed its resources or any applicable insurance coverage it may have. Additionally, Sema4 is subject on an ongoing basis to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. The cost of compliance with these laws and regulations may become significant, and Sema4’s failure to comply may result in substantial fines or other consequences, and either could negatively affect its operating results.
Sema4 and its partners will have to maintain compliance with FDA requirements for research, products and services and failure to maintain compliance with FDA requirements may prevent or delay the marketing of its products and services.
Even if Sema4 has obtained marketing authorization, it will have to comply with the scope of that clearance, authorization or approval. Failure to secure and to comply with clearance, authorization or approval or the additional, extensive and ongoing post-marketing obligations imposed by the FDA or other regulatory requirements of other regulatory agencies could result in unanticipated compliance expenditures, a range of administrative enforcement actions, injunctions and criminal prosecution. FDA post-market obligations include, among other things, compliance with the FDA QSR, establishing registration and device listings, labeling requirements, reporting of certain adverse events and malfunctions, and reporting of certain recalls. In addition, circumstances may arise that cause Sema4 to recall equipment used in connection with its research, products and services. Such recalls could have an adverse effect on Sema4’s ability to provide those products and services, which in turn would adversely affect its financial condition. Sema4’s collaborators will also be required to maintain FDA clearance, authorization or approval for the products and services that Sema4 jointly develops. Any failure by Sema4 or its collaborators to maintain such clearance, authorization or approval could impair or cause a delay in its ability to profit from these collaborations.
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Future changes in FDA enforcement discretion for LDTs could subject Sema4’s operations to much more significant regulatory requirements.
Sema4 currently offers a laboratory-develop test, or LDT, version of certain tests. The FDA has a policy of enforcement discretion with respect to, or LDTs, whereby the FDA does not actively enforce its medical device regulatory requirements for such tests. However, in October 2014, the FDA issued two draft guidance documents stating that the FDA intended to modify its policy of enforcement discretion with respect to LDTs in a risk-based manner consistent with the existing classification of medical devices. Although the FDA halted finalization of the guidance in November 2016 to allow for further public discussion on an appropriate oversight approach to LDTs and to give Congressional authorizing committees the opportunity to develop a legislative solution, it is unclear if Congress or the FDA will modify the current approach to the regulation of LDTs in a way that would subject Sema4’s current or future services marketed as LDTs to the enforcement of FDA regulatory requirements. The FDA Commissioner and the Director of the Center for Devices and Radiological Health, or CDRH, have expressed significant concerns regarding disparities between some LDTs and in vitro diagnostics that have been reviewed, cleared, authorized or approved by the FDA. If the FDA were to determine that certain tests offered by Sema4 as LDTs are not within the policy for LDTs for any reason, including new rules, policies or guidance, or due to changes in statute, its tests may become subject to extensive FDA requirements or Sema4’s business may otherwise be adversely affected. If the FDA were to disagree with Sema4’s LDT status or modify its approach to regulating LDTs, Sema4 could experience reduced revenue or increased costs, which could adversely affect Sema4’s business, prospects, results of operations and financial condition. If required, the regulatory marketing authorization process required to bring Sema4’s current or future LDTs into compliance may involve, among other things, successfully completing additional clinical validations and submitting to and obtaining clearance from the FDA for a premarket clearance (510(k)) submission or authorization for a de novo or approval of a PMA. Furthermore, pending legislative proposals, if passed, such as the VALID Act, could create new or different regulatory and compliance burdens on Sema4 and could have a negative effect on its ability to keep products on the market or develop new products, which could have a material effect on its business. In the event that the FDA requires marketing authorization of Sema4’s LDTs in the future, the FDA may not ultimately grant any clearance, authorization or approval requested by Sema4 in a timely manner, or at all. In addition, if the FDA inspects Sema4’s laboratory in relation to the marketing of any FDA-authorized test, any enforcement action the FDA takes might not be limited to the FDA-authorized test carried by Sema4 and could encompass its other testing services.
Recently, the FDA has also taken a more active role in certain diagnostic areas, including the oversight of pharmacogenetic, or PGx, and COVID-19 tests. In 2019, the FDA contacted several laboratories to demand changes to PGx test reports and marketing materials. In February 2020, the FDA issued a statement indicating that it continues to have concerns about the claims that certain clinical laboratories make with respect to their PGx tests, and published tables that list PGx associations for which the FDA has determined that the data support therapeutic management recommendations, a potential impact on safety or response, or a potential impact on pharmacokinetic properties only, respectively. To date, however, the FDA has not provided any general guidance on the types of claims or other characteristics that will cause a PGx test to fall outside FDA’s enforcement discretion. As such, the extent to which the FDA will allow any laboratory to offer PGx tests in their current form without meeting FDA regulatory requirements for medical devices is unclear at this time.
For each product and service Sema4 is developing that may require FDA premarket review prior to marketing, the FDA may not grant clearance, authorization or premarket approval and failure to obtain necessary approvals for its future products and services would adversely affect its ability to grow its business.
Before Sema4 begins to manufacture, label and market additional clinical diagnostic products for commercial diagnostic use in the United States, Sema4 may be required to obtain either clearance, marketing authorization or approval from the FDA, unless an exemption applies or the FDA exercises its enforcement discretion and refrains from enforcing its requirements. For example, the FDA currently has a policy of refraining from enforcing its medical device requirements with respect to LDTs, which the FDA considers to be a type of in vitro diagnostic test that is designed, manufactured and used within a single properly licensed laboratory.
The process of obtaining PMA is much more rigorous, costly, lengthy and uncertain than the 510(k) clearance process. In the PMA approval process, the FDA must determine that a proposed device is safe and effective for its
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intended use based, in part, on extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturing and labeling data. Conversely, in the 510(k) clearance process, the FDA must determine that a proposed device is “substantially equivalent” to a legally marketed “predicate” device in order for the product to be cleared for marketing. To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device, and either have the same technological characteristics or if it has different technological characteristics as the predicate device, the proposed device must be as safe and effective as, and not raise different questions of safety or effectiveness than, the predicate device. Clinical data is sometimes required to support substantial equivalence. For lower-risk devices that would otherwise automatically be placed into Class III, which require a PMA because no predicate device is available and the devices do not fall within an existing 510(k)-exempt classification, an applicant may submit a de novo request to down classify the device into Class II or Class I, which would not require a PMA. In the de novo process, the FDA must determine that general and special controls are sufficient to provide reasonable assurance of the safety and effectiveness of a device, which is low to moderate risk and has no predicate. In other words, the applicant must justify the “down-classification” to Class I or II for a new product type that would otherwise automatically be placed into Class III, but is lower risk. Clinical data may be required. For laboratory tests for which FDA clearance, authorization or approval is required, the FDA may also require data to support analytical and clinical validity.
The 510(k), de novo and PMA processes can be expensive and lengthy and require the payment of significant fees, unless an exemption applies. The FDA’s 510(k) clearance pathway usually takes from three to nine months from submission, but it can take longer for a novel type of product. The FDA’s de novo classification pathway usually takes from six to 12 months, but for many applicants can take up to 18 months or more.
The process of obtaining a PMA generally takes from one to three years, or even longer, from the time the PMA is submitted to the FDA until an approval is obtained. Any delay or failure to obtain necessary regulatory clearances, authorizations or approvals would have a material adverse effect on Sema4’s business, financial condition and prospects.
The FDA can delay, limit or deny clearance, authorization or approval of a device for many reasons, including:
•the inability to demonstrate to the satisfaction of the FDA that the products are safe or effective for their intended uses;
•the disagreement of the FDA with the design, conduct or implementation of the clinical trials or the analysis or interpretation of data from preclinical studies, analytical studies or clinical trials;
•serious and unexpected adverse device effects experienced by participants in clinical trials;
•the data from preclinical studies, analytical studies and clinical trials may be insufficient to support clearance, authorization or approval, where required;
•the inability to demonstrate that the clinical and other benefits of the device outweigh the risks;
•an advisory committee, if convened by the FDA, may recommend against approval of a PMA or other application or may recommend that the FDA require, as a condition of approval, additional preclinical studies or clinical trials, limitations on approved labeling or distribution and use restrictions, or even if an advisory committee makes a favorable recommendation, the FDA may still not approve the product;
•the FDA may identify deficiencies in Sema4’s marketing application;
•the FDA may identify deficiencies in Sema4 or its collaborators’ manufacturing processes, facilities or analytical methods;
•the potential for policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering clinical data or regulatory filings insufficient for clearance, authorization or approval; and
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•the FDA or foreign regulatory authorities may audit clinical trial data and conclude that the data is not sufficiently reliable to support a PMA.
There are numerous FDA personnel assigned to review different aspects of marketing submissions, which can present uncertainties based on their ability to exercise judgment and discretion during the review process. During the course of review, the FDA may request or require additional data and information, and the development and provision of these data and information may be time-consuming and expensive. The process of obtaining regulatory clearances, authorizations or approvals to market a medical device can be costly and time-consuming, and Sema4 may not be able to obtain these clearances, authorizations or approvals on a timely basis, or at all for its products in development. If Sema4 is unable to obtain clearance, authorization or approval for any products for which it plans to seek clearance, authorization or approval, its business may be harmed.
Modifications to Sema4’s products with FDA marketing authorization may require new FDA clearances, authorizations or approvals, or may require it to cease marketing or recall the modified clinical diagnostic products or future clinical products until clearances are obtained.
Any modification to a 510(k)-cleared device that significantly affects its safety or effectiveness, or that constitutes a major change in its intended use, could require a new 510(k) clearance, a new de novo authorization or approval of a PMA. The FDA requires every manufacturer to make this determination in the first instance, but the FDA may review any manufacturer’s decision. The FDA may not agree with Sema4’s decisions regarding whether new clearances, authorizations or approvals are necessary.
For any product approved pursuant to a PMA, Sema4 would be required to seek supplemental approval for many types of modifications to the approved product. The FDA requires manufacturers in the first instance to determine whether a PMA supplement or other regulatory filing is needed or whether the change may be reported via the PMA Annual Report, but may disagree with a company’s assessment.
If the FDA disagrees with Sema4’s determination, which it may not review until Sema4 submits an annual report or the FDA conducts an inspection or other inquiry, and requires Sema4 to seek new clearances, authorizations or approvals for modifications to its previously cleared, authorized or approved clinical diagnostic products for which Sema4 has concluded new clearances, authorizations or approvals are unnecessary, Sema4 may be required to cease marketing or distribution of these clinical diagnostic products or to recall the modified products until Sema4 obtains clearance, authorization or approval. Sema4 may also be subject to enforcement action, including, among other things, significant regulatory fines or penalties.
In addition, for example, Sema4 plans to match its test reports for certain indications to identified mutations with FDA-approved targeted therapies or relevant clinical trials of targeted therapies. If a patient or physician who orders a test using one of Sema4’s products is unable to obtain, or be reimbursed for the use of, targeted therapies because they are not indicated in the FDA-approved label for treatment, the patient is unable to enroll in an identified clinical trial due to the enrollment criteria of the trial, or some other reason, the ordering physician may conclude the test report does not contain actionable information. If physicians do not believe Sema4’s products consistently generate actionable information about their patients’ disease or condition, they may be less likely to use Sema4’s products.
Furthermore, Sema4 cannot provide assurance that customers will always use these products in the manner in which they are intended. Any intentional or unintentional misuse of these products by customers could lead to substantial civil and criminal monetary and non-monetary penalties, and could result in significant legal and investigatory fees.
Sema4’s business is subject to various complex laws and regulations applicable to clinical diagnostics. Sema4 could be subject to significant fines and penalties if it or its partners fail to comply with these laws and regulations.
As a provider of clinical diagnostic products and services, Sema4 and its partners are subject to extensive and frequently changing federal, state, local and foreign laws and regulations governing various aspects of its business.
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In particular, the clinical laboratory and healthcare industry is subject to significant governmental certification and licensing regulations, as well as federal, state and foreign laws regarding:
•test ordering and billing practices;
•marketing, sales and pricing practices;
•health information privacy and security, including HIPAA and comparable state laws;
•insurance;
•anti-markup legislation;
•fraud and abuse; and
•consumer protection.
Sema4 is also required to comply with FDA regulations, including with respect to its labeling and promotion activities. In addition, advertising and marketing of its clinical products are subject to regulation by the Federal Trade Commission, or FTC, and advertising of laboratory services is regulated by certain state laws. Violation of any FDA requirement could result in enforcement actions, such as seizures, injunctions, civil penalties and criminal prosecutions, and violation of any FTC or state law requirement could result in injunctions and other remedies, all of which could have a material adverse effect on Sema4’s business. Most states also have similar regulatory and enforcement authority for devices. Additionally, most foreign countries have authorities comparable to the FDA and processes for obtaining marketing approvals. Obtaining and maintaining these approvals, and complying with all laws and regulations, may subject Sema4 to similar risks and delays as those it could experience under FDA, FTC and state regulation. Sema4 incurs various costs in complying and overseeing compliance with these laws and regulations. The growth of Sema4’s business and sales organization, the acquisition of additional businesses or products and services and its expansion outside of the U.S. may increase the potential of violating these laws, regulations or its internal policies and procedures.
Healthcare policy has been a subject of extensive discussion in the executive and legislative branches of the federal and many state governments and healthcare laws and regulations are subject to change. Development of the existing commercialization strategy for its tests and planned development of products in Sema4’s pipeline has been based on existing healthcare policies. Sema4 cannot predict what additional changes, if any, will be proposed or adopted or the effect that such proposals or adoption may have on its business, financial condition and results of operations.
If Sema4 or its partners, fail to comply with these laws and regulations, it could incur significant fines and penalties and its reputation and prospects could suffer. Additionally, any such partners could be forced to cease offering Sema4’s products and services in certain jurisdictions, which could materially disrupt its business. An adverse outcome could include Sema4 being required to pay treble damages, incur civil and criminal penalties, paying attorneys’ fees, entering into a corporate integrity agreement, being excluded from participation in government healthcare programs, including Medicare and Medicaid, and other adverse actions that could materially and adversely affect its business, financial condition and results of operations.
Compliance with the HIPAA security, privacy and breach notification regulations may increase Sema4’s costs.
The HIPAA privacy, security and breach notification regulations, including the expanded requirements under HITECH, establish comprehensive federal standards with respect to the uses and disclosures of protected health information, or PHI, by health plans, healthcare providers and healthcare clearinghouses, in addition to setting standards to protect the confidentiality, integrity and security of PHI. The regulations establish a complex regulatory framework on a variety of subjects, including:
•the circumstances under which uses and disclosures of PHI are permitted or required without a specific authorization by the patient, including but not limited to treatment purposes, activities to obtain payments for Sema4’s services, and its healthcare operations activities;
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•a patient’s rights to access, amend and receive an accounting of certain disclosures of PHI;
•requirements to notify individuals if there is a breach of their PHI;
•the contents of notices of privacy practices for PHI;
•administrative, technical and physical safeguards required of entities that use or receive PHI;
•deidentification of PHI; and
•the protection of computing systems maintaining electronic PHI.
Sema4 has implemented practices intended to meet the requirements of the HIPAA privacy, security and breach notification regulations, as required by law. Sema4 is required to comply with federal privacy, security and breach notification regulations as well as varying state privacy, security and breach notification laws and regulations, which may be more stringent than federal HIPAA requirements. In addition, for healthcare data transfers from other countries relating to citizens of those countries, Sema4 must comply with the laws of those countries. The federal privacy regulations under HIPAA restrict Sema4’s ability to use or disclose patient identifiable data, without patient authorization, for purposes other than payment, treatment, healthcare operations and certain other specified disclosures such as public health and governmental oversight of the healthcare industry.
HIPAA provides for significant fines and other penalties for wrongful use or disclosure of PHI, including potential civil and criminal fines and penalties. Computer networks are always vulnerable to breach and unauthorized persons may in the future be able to exploit weaknesses in the security systems of Sema4’s computer networks and gain access to PHI. Additionally, Sema4 shares PHI with third-parties who are legally obligated to safeguard and maintain the confidentiality of PHI. Unauthorized persons may be able to gain access to PHI stored in such third-parties computer networks. Any wrongful use or disclosure of PHI by Sema4 or such third-parties, including disclosure due to data theft or unauthorized access to Sema4 or its third-parties computer networks, could subject it to fines or penalties that could adversely affect its business and results of operations. Although the HIPAA statute and regulations do not expressly provide for a private right of damages, Sema4 could also be liable for damages under state laws to private parties for the wrongful use or disclosure of confidential health information or other private personal information.
Some of Sema4’s activities may subject it to risks under federal and state laws prohibiting ‘kickbacks’ and false or fraudulent claims.
In addition to FDA marketing and promotion restrictions, several other types of state and federal healthcare fraud and abuse laws have been applied in recent years to restrict certain marketing practices in the healthcare product and service industry and to regulate billing practices and financial relationships with healthcare providers, hospitals and other healthcare providers. These laws include a federal law commonly known as the Medicare/Medicaid anti-kickback law, and several similar state laws, which prohibit payments intended to induce healthcare providers or others either to refer patients or to acquire or arrange for or recommend the acquisition of healthcare products or services. While the federal law applies only to referrals, products or services for which payment may be made by a federal healthcare program, state laws often apply regardless of whether federal funds may be involved. These laws constrain the sales, marketing and other promotional activities of manufacturers of medical devices and providers of laboratory services by limiting the kinds of financial arrangements, including sales programs, that may be used with hospitals, healthcare providers, laboratories and other potential purchasers or prescribers of medical devices and laboratory services. Other federal and state laws generally prohibit individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent, or are for items or services that were not provided as claimed.
In 2018, Congress passed EKRA as part of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act. Similar to the Medicare/Medicaid anti-kickback law, EKRA imposes criminal penalties for knowing or willful payment or offer, or solicitation or receipt, of any remuneration, whether directly or indirectly, overtly or covertly, in cash or in kind, in exchange for the referral or inducement of laboratory testing (among other healthcare services) unless a specific exception applies. However,
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unlike the Medicare/Medicaid anti-kickback law, EKRA is not limited to services covered by federal or state healthcare programs but applies more broadly to services covered by “healthcare benefit programs,” including commercial insurers. As currently drafted, EKRA potentially expands the universe of arrangements that could be subject to government enforcement under federal fraud and abuse laws. In addition, while the Medicare/Medicaid anti-kickback law includes certain exceptions that are widely relied upon in the healthcare industry, not all of those same exceptions apply under EKRA. Because EKRA is a relatively new law, there is no agency guidance or court precedent to indicate how and to what extent it will be applied and enforced. Sema4 cannot assure you that its relationships with healthcare providers, hospitals, customers, its own sales representatives, or any other party will not be subject to scrutiny or will survive regulatory challenge under EKRA.
Additionally, to avoid liability under federal false claims laws, Sema4 or its partners must carefully and accurately code claims for reimbursement, proactively monitor the accuracy and appropriateness of claims and payments received, diligently investigate any credible information indicating that it may have received an overpayment, and promptly return any overpayments. Medicare payments are subject to audit, including through the Comprehensive Error Rate Testing, or CERT, program, and payments may be recouped by CMS if it is determined that they were improperly made. Currently, a small percentage of Sema4’s revenues are generated by payments from Medicare. The federal anti-kickback statute and certain state-level false claims laws prescribe civil and criminal penalties (including fines) for noncompliance that can be substantial. In addition, various states have enacted false claim laws analogous to the federal laws that apply where a claim is submitted to any third-party payor and not only a governmental payer program. While Sema4 continually strives to comply with these complex requirements, interpretations of the applicability of these laws to marketing and billing practices are constantly evolving and even an unsuccessful challenge could cause adverse publicity and be costly to respond to, and thus could harm its business and prospects. Sema4’s failure to comply with applicable laws could result in various adverse consequences that could have a material adverse effect upon its business, including the exclusion of its products and services from government programs and the imposition of civil or criminal sanctions.
Sema4’s business could be harmed by the loss, suspension or other restriction on a license, certification or accreditation, or by the imposition of a fine or penalties, under CLIA, its implementing regulations or other state, federal and foreign laws and regulations affecting licensure or certification, or by future changes in these laws or regulations.
Federal law requires virtually all clinical laboratories to comply with CLIA, which generally involves becoming certified by the federal and state government for the testing that will be performed and complying with various operational, personnel, facilities administration, quality and proficiency testing requirements intended to ensure that testing services are accurate and reliable. CLIA certification is also a prerequisite to be eligible to bill state and federal healthcare programs, as well as many private third-party payors, for laboratory research and clinical diagnostic testing services. For example, as a condition of Sema4’s CLIA certification, a laboratory may be subject to survey and inspection every other year, additional random inspections and surprise inspections based on complaints received by state or federal regulators. The biennial survey and inspection is conducted by CMS, a CMS agent or, if the laboratory holds a CLIA certificate of accreditation, a CMS-approved accreditation organization, such as CAP. Sanctions for failure to comply with CLIA requirements, including proficiency testing violations, may include suspension, revocation or limitation of a laboratory’s CLIA certificate, which is necessary to conduct business, as well as the imposition of significant civil, administrative or criminal sanctions against the lab, its owners and other individuals. In addition, Sema4 is subject to regulation under certain state laws and regulations governing laboratory licensure. Some states have enacted laboratory licensure and compliance laws that are more stringent than CLIA. Changes in state licensure laws that affect Sema4’s ability to offer and provide research and diagnostic products and services across state or foreign country lines could materially and adversely affect its business. In addition, state and foreign requirements for laboratory certification may be costly or difficult to meet and could affect its ability to receive specimens from certain states or foreign countries.
Any sanction imposed under CLIA, its implementing regulations or state or foreign laws or regulations governing licensure, or Sema4’s failure to renew a CLIA certificate, a state or foreign license or accreditation, could have a material adverse effect on its business.
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Sema4 may never obtain approval in the EU or in any other foreign country for any of its products or services and, even if Sema4 does, it or its partners and collaborators may never be able to commercialize them in another jurisdiction, which would limit Sema4’s ability to realize their full market potential.
In order to eventually market any of its current or future products and services in any particular foreign jurisdiction, Sema4 must establish compliance with numerous and varying regulatory requirements on a jurisdiction-by-jurisdiction basis regarding quality, safety, performance, privacy and efficacy. In addition, clinical trials or clinical investigations conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory clearance, authorization or approval in one country does not guarantee regulatory clearance, authorization or approval in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods.
Seeking foreign regulatory clearance, authorization or approval could result in difficulties and costs for Sema4 and its collaborators and require additional preclinical studies, clinical trials or clinical investigations which could be costly and time-consuming. Regulatory requirements and ethical approval obligations can vary widely from country to country and could delay or prevent the introduction of Sema4’s products and services in those countries. The foreign regulatory clearance, authorization or approval process involves all of the risks and uncertainties associated with FDA clearance, authorization or approval. Sema4 currently has limited experience in obtaining regulatory clearance, authorization or approval in international markets. If Sema4 or its collaborators fail to comply with regulatory requirements in international markets or to obtain and maintain required regulatory clearances, authorizations or approvals in international markets, or if those approvals are delayed, its target market will be reduced and its ability to realize the full market potential of Sema4’s products and services will be unrealized.
Complying with numerous statutes and regulations pertaining to Sema4’s business is an expensive and time-consuming process, and any failure to comply could result in substantial penalties.
Sema4’s operations are subject to other extensive federal, state, local and foreign laws and regulations, all of which are subject to change. These laws and regulations currently include, among others:
•HIPAA, which establishes comprehensive federal standards with respect to the privacy and security of protected health information and requirements for the use of certain standardized electronic transactions;
•amendments to HIPAA under HITECH, which strengthen and expand HIPAA privacy and security compliance requirements, increase penalties for violators and expand vicarious liability, extend enforcement authority to state attorneys general, and impose requirements for breach notification;
•the General Data Protection Regulation, or GDPR, which imposes strict privacy and security requirements on controllers and processors of European personal data, including enhanced protections for “special categories” of personal data, including sensitive information such as health and genetic information of data subjects;
•the CCPA, which, among other things, regulates how subject businesses may collect, use, disclose and/or sell the personal information of consumers who reside in California, affords rights to consumers that they may exercise against businesses that collect their information, and requires implementation of reasonable security measures to safeguard personal information of California consumers;
•the federal Anti-Kickback Statute, which prohibits knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for the referral of an individual, for the furnishing of or arrangement for the furnishing of any item or service for which payment may be made in whole or in part by a federal healthcare program, or the purchasing, leasing, ordering, arranging for, or recommend purchasing, leasing or ordering, any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program;
•EKRA, which prohibits payments for referrals to recovery homes, clinical treatment facilities, and laboratories and reaches beyond federal health care programs, to include private insurance;
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•the federal physician self-referral law, known as the Stark Law, which prohibits a physician from making a referral to an entity for certain designated health services covered by the Medicare program, including laboratory and pathology services, if the physician or an immediate family member has a financial relationship with the entity unless an exception applies, and prohibits an entity from billing for designated health services furnished pursuant to a prohibited referral;
•the federal false claims law, which imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment to the federal government;
•the federal Civil Monetary Penalties Law, which prohibits, among other things, the offering or transfer of remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of services reimbursable by Medicare or a state healthcare program, unless an exception applies;
•the HIPAA fraud and abuse provisions, which create new federal criminal statutes that prohibit, among other things, defrauding health care benefit programs, willfully obstructing a criminal investigation of a healthcare offense and falsifying or concealing a material fact or making any materially false statements in connection with the payment for healthcare benefits, items or services;
•other federal and state fraud and abuse laws, such as anti-kickback laws, prohibitions on self-referral, fee-splitting restrictions, insurance fraud laws, anti-markup laws, prohibitions on the provision of tests at no or discounted cost to induce physician or patient adoption, and false claims acts, which may extend to services reimbursable by any third-party payer, including private insurers;
•the 21st Century Cures Act information blocking prohibition, which prohibits covered actors from engaging in certain practices that are likely to interfere with the access, exchange, or use of electronic health information;
•the Physician Payments Sunshine Act and similar state laws that require reporting of certain payments and other transfers of value made by applicable manufacturers, directly or indirectly, to or on behalf of covered recipients including physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals as well as ownership and investment interests held by physicians and their immediate family members.
•Beginning in 2022, applicable manufacturers also will be required to report such information regarding its relationships with physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists and certified nurse midwives during the previous year;
•state laws that limit or prohibit the provision of certain payments and other transfers of value to certain covered healthcare providers;
•the prohibition on reassignment of Medicare claims, which, subject to certain exceptions, precludes the reassignment of Medicare claims to any other party;
•state laws that prohibit other specified practices, such as billing clinicians for testing that they order; waiving coinsurance, copayments, deductibles and other amounts owed by patients; billing a state Medicaid program at a price that is higher than what is charged to one or more other payers;
•similar foreign laws and regulations that may apply to it in the countries in which Sema4 operates or may operate in the future; and
•laws that relate to maintaining accurate information and control over activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act, its books and records provisions, or anti-bribery provisions.
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Sema4 has adopted policies and procedures designed to comply with these laws and regulations. In the ordinary course of its business, Sema4 conducts internal reviews of its compliance with these laws. Sema4’s compliance may also be subject to governmental review. The growth of Sema4’s business and its expansion outside of the United States may increase the potential of violating these laws or its internal policies and procedures. The risk of Sema4 being found in violation of these or other laws and regulations is further increased by the fact that many have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action brought against Sema4 for violation of these or other laws or regulations, even if it successfully defends against it, could cause it to incur significant legal expenses and divert Sema4’s management’s attention from the operation of its business. If Sema4’s operations are found to be in violation of any of these laws and regulations, it may be subject to any applicable penalty associated with the violation, including significant administrative, civil and criminal penalties, damages, fines, imprisonment, exclusion from participation in Federal healthcare programs, refunding of payments received by it and curtailment or cessation of Sema4’s operations, which may impact existing contracts with key payors, collaborators, health systems, and commercial partners. Any of the foregoing consequences could seriously harm Sema4’s business and its financial results.
Sema4 faces uncertainty related to healthcare reform, pricing, coverage and reimbursement, which could reduce its revenue.
Healthcare reform laws, including the Patient Protection and Affordable Care Act, ACA, and the Protecting Access to Medicare Act of 2014, or PAMA, are significantly affecting the U.S. healthcare and medical services industry. Existing legislation, and possible future legal and regulatory changes, including potential repeal or modification of the ACA, elimination of penalties regarding the individual mandate for coverage, or approval of health plans that allow lower levels of coverage for preventive services, could materially change the structure and finances of the health insurance system and the methodology for reimbursing medical services, drugs and devices, including Sema4’s current and future products and services. The ACA has also been the subject of various legal challenges and in December 2018, a federal district court in Texas found that the ACA’s “individual mandate” was unconstitutional such that the whole of the ACA is invalid. The decision was appealed, and in December 2019, the Fifth Circuit Court of Appeals affirmed certain portions of the district court’s decision but remanded to the district court to determine if any portions of the ACA may still be valid. If the plaintiffs in this case, or in any other case challenging the ACA, are ultimately successful, insurance coverage for Sema4’s tests could be materially and adversely affected. Any change in reimbursement policy could result in a change in patient cost-sharing, which could adversely affect a provider’s willingness to prescribe and patient’s willingness and ability to use Sema4’s tests and any other product or service Sema4 may develop. Healthcare reforms, which may intend to reduce healthcare costs, may have the effect of discouraging third-party payors from covering certain kinds of medical products and services, particularly newly developed technologies, or other products or tests Sema4 may develop in the future. Sema4 cannot predict whether future healthcare reform initiatives will be implemented at the federal or state level or the effect any such future legislation or regulation will have on it. The taxes imposed by new legislation, cost reduction measures and the expansion in the government’s role in the U.S. healthcare industry may result in decreased profits to Sema4, which may adversely affect its business, financial condition and results of operations.
PAMA presents significant uncertainty for future CMS reimbursement rates for Sema4’s tests. Because Medicare currently covers a significant number of patients, any reduction in the CMS reimbursement rate for Sema4’s tests would negatively affect its revenues and its business prospects. Under PAMA, CMS reimbursement rates for clinical diagnostic laboratory tests are updated every three years, or annually for clinical laboratory tests that are considered "advanced diagnostic laboratory tests". The CMS reimbursement rates for clinical diagnostic laboratory tests are updated based on the volume-weighted median of private payer rates for each clinical diagnostic laboratory test based on data submitted by certain applicable laboratories. Further, laboratories that fail to report or erroneously report required payment information may be subject to substantial civil money penalties. There can be no assurance under PAMA that adequate CMS reimbursement rates will continue to be assigned to Sema4’s tests. Congress could modify or repeal PAMA in the future or CMS could modify regulations under PAMA, and any such action could have the effect of reducing the CMS reimbursement rate for Sema4’s tests. Further, it is possible that Medicare or other federal payers that provide reimbursement for Sema4’s tests may suspend, revoke or discontinue coverage at any time, may require co-payments from patients, or may reduce the reimbursement rates payable to it. Any such action could have a negative impact on Sema4’s revenues.
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Coverage of Sema4’s screening products that it may develop may also depend, in whole or in part, on whether payers determine, or courts and/or regulatory authorities determine, coverage is required under applicable federal or state laws mandating coverage of certain cancer screening services.
Several states have laws mandating coverage for preventive services, such as certain cancer screening services, applicable to certain health insurers. However, not all of these laws apply to Sema4’s current tests and not all of these laws presently mandate coverage for patients within the certain age ranges. Sema4 and payers may disagree about how these mandates apply to its tests and Sema4 may find the mandates difficult to enforce. Further, if the ACA is repealed, replaced or overturned, or even if it is not, states may decide to modify their laws, which may include repeal of those coverage mandates that Sema4 believes currently apply to its oncology tests.
Outside of the U.S., Sema4 would largely depend on public or government-controlled payers for coverage of its oncology tests. As compared to many more routine diagnostic tests, Sema4’s oncology tests are more complicated, expensive and are performed in a central, specialized lab. In order to accommodate the unique characteristics of Sema4’s diagnostic products, public payers in certain non-U.S. markets have designed reimbursement frameworks specifically for each test type. These payers could decide to modify or discontinue these special frameworks, potentially leading to lower reimbursement prices or the impossibility of providing the test in the market. These changes could also impose additional administrative burdens on Sema4, if it were to ever sell its tests in foreign jurisdictions, including complex public tendering procedures, or on ordering physicians, which could adversely affect the number of payers covering the test or the number of orders placed. Public payers could condition reimbursement of Sema4’s tests upon performance of its tests locally or, even in laboratories owned or operated by the payers. Any such change would adversely affect Sema4’s ability to continue to serve those patients through its labs. Sema4 may develop future oncologic tests that could be performed locally by laboratory partners and in hospitals around the world, however those developments efforts may be unsuccessful and any such tests that Sema4 may develop may not be approved by regulators or accepted by payers or patients.
Product and professional liability suits against Sema4 could result in expensive and time-consuming litigation, payment of substantial damages and increases in its insurance rates.
The sale and use of Sema4’s solutions, products and services could lead to product or professional liability claims, including class action lawsuits. Sema4 may also be subject to liability for errors in the test results including health information it provides to healthcare providers or patients or for a misunderstanding of, or inappropriate reliance upon, the information it provides. Claims could also arise out of clinical studies Sema4 may conduct or any of its other activities. A product or professional liability claim could result in substantial damages, be costly and time consuming to defend, and cause material harm to its business, reputation or financial condition. Sema4 cannot assure you that its liability insurance would protect its assets from the financial impact of defending a product or professional liability claim. Any claim brought against Sema4, with or without merit, could increase its liability insurance rates or prevent it from securing insurance coverage in the future.
Errors, defects, or mistakes in Sema4’s products or services, and operations could harm its reputation, decrease market acceptance of its products or services.
Sema4 is creating new products and services, many of which are initially based on largely untested technologies. As all of Sema4’s products and services progress, Sema4 or others may determine that it made product or service-level scientific or technological mistakes. The diagnostic and testing processes utilize a number of complex and sophisticated molecular, biochemical, informatics, and mechanical processes, many of which are highly sensitive to external factors. An operational or technological failure in one of these complex processes or fluctuations in external factors may result in less efficient processing or variation between testing runs. Refinements to Sema4’s processes may initially result in unanticipated issues that reduce the efficiency or increase variability. In particular, sequencing, which is a key component of these processes, could be inefficient with higher than expected variability thereby increasing total sequencing costs and reducing the number of samples Sema4 can process in a given time period. Therefore, inefficient or variable processes can cause variability in Sema4’s operating results and damage its reputation.
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In addition, Sema4’s laboratory operations could result in any number of errors or defects. Sema4’s quality assurance system may fail to prevent it from inadvertent problems with samples, sample quality, lab processes including sequencing, software, data upload or analysis, raw materials, reagent manufacturing, assay quality or design, or other components or processes. In addition, Sema4’s assays may have quality or design errors, and it may have inadequate procedures or instrumentation to process samples, assemble its proprietary primer mixes and commercial materials, upload and analyze data, or otherwise conduct its laboratory operations. If Sema4 provides products or services with undiscovered errors to its customers, its clinical diagnostics may falsely indicate a patient has a disease or genetic variant, fail to assess a patient’s risk of getting a disease or having a child with a disease, or fail to detect disease or variant in a patient who requires or could benefit from treatment or intervention. Sema4 believes its customers are likely to be particularly sensitive to product and service defects, errors and delays, including if Sema4’s products and services fail to indicate the presence of residual disease with high accuracy from clinical specimens or if Sema4 fails to list or inaccurately indicate the presence or absence of disease in its test report or analysis. In drug discovery, such errors may interfere with Sema4’s collaborators’ clinical studies or result in adverse safety or efficacy profiles for their products in development. This may harm Sema4’s customers’ businesses and may cause it to incur significant costs, divert the attention of key personnel, encourage regulatory enforcement action against it, create a significant customer relations problem for Sema4 and cause its reputation to suffer. Sema4 may also be subject to warranty and liability claims for damages related to errors or defects in its products or services. Any of these developments could harm Sema4’s business and operating results.
Sema4 is subject to increasingly complex taxation rules and practices, which may affect how it conducts its business and its results of operations
As its business grows, Sema4 is required to comply with increasingly complex taxation rules and practices. Sema4 is subject to tax in multiple U.S. tax jurisdictions and may be subject to foreign tax jurisdictions in the future. The development of Sema4’s tax strategies requires additional expertise and may impact how it conducts its business. Sema4’s future effective tax rates could be unfavorably affected by changes in, or interpretations of, tax rules and regulations in the jurisdictions in which it does business or by changes in the valuation of its deferred tax assets and liabilities. Furthermore, Sema4 provides for certain tax liabilities that involve significant judgment. Sema4 is and may be subject to the examination of its tax returns by federal, state and foreign tax authorities. If Sema4’s tax strategies are ineffective or it is not in compliance with domestic and international tax laws, as applicable, its financial position, operating results and cash flows could be adversely affected.
Risks Related to Sema4’s Intellectual Property and Trade Secrets
Sema4’s inability to effectively protect its proprietary products, processes, and technologies, including the confidentiality of its trade secrets, could harm its competitive position.
Sema4 currently relies upon trade secret protection and copyright, as well as non-disclosure agreements and invention assignment agreements with its employees, consultants and third parties, and to a limited extent patent protection, to protect its confidential and proprietary information. Although Sema4’s competitors have utilized and are expected to continue utilizing similar methods and have aggregated and are expected to continue to aggregate similar databases of genetic testing information, its success will depend upon its ability to develop proprietary methods and databases and to defend any advantages afforded to it by its methods and databases relative to its competitors. If Sema4 does not protect its intellectual property adequately, competitors may be able to use its methods and databases and thereby erode any competitive advantages Sema4 may have.
Sema4 will be able to protect its proprietary rights from unauthorized use by third parties only to the extent that its proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets. In this regard, Sema4 has applied, and it intends to continue applying, for patents covering such aspects of its technologies as it deems appropriate. However, Sema4 expects that potential patent coverage it may obtain will not be sufficient to prevent substantial competition. In this regard, Sema4 believes it is probable that others will independently develop similar or alternative technologies or design around those technologies for which Sema4 may obtain patent protection. In addition, any patent applications Sema4 files may be challenged and may not result in issued patents or may be invalidated or narrowed in scope after they are issued. Questions as to inventorship or ownership may also arise. Any finding that Sema4’s patents or applications are unenforceable could harm its ability
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to prevent others from practicing the related technology, and a finding that others have inventorship or ownership rights to its patents and applications could require it to obtain certain rights to practice related technologies, which may not be available on favorable terms, if at all. If Sema4 initiates lawsuits to protect or enforce its patents, or litigate against third-party claims, which would be expensive, and Sema4 loses, it may lose some of its intellectual property rights. Furthermore, these lawsuits may divert the attention of its management and technical personnel.
Sema4 expects to rely substantially upon trade secrets and proprietary know-how protection for its confidential and proprietary information, and Sema4 has taken security measures to protect this information. These measures, however, may not provide adequate protection for its trade secrets, know-how or other confidential information. Among other things, Sema4 seeks to protect its trade secrets and confidential information by entering into confidentiality agreements with employees and consultants. There can be no assurance that any confidentiality agreements that Sema4 has with its employees and consultants will provide meaningful protection for its trade secrets and confidential information or will provide adequate remedies in the event of unauthorized use or disclosure of such information. Accordingly, there also can be no assurance that Sema4’s trade secrets will not otherwise become known or be independently developed by competitors. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, trade secrets may be independently developed by others in a manner that could prevent legal recourse by Sema4. If any of Sema4’s confidential or proprietary information, such as its trade secrets, were to be disclosed or misappropriated, or if any such information was independently developed by a competitor, Sema4’s competitive position could be harmed.
Any inability to effectively protect Sema4’s proprietary technologies under certain jurisdictions and legal regimes could harm its competitive position.
Sema4’s success and ability to compete in certain jurisdictions and under certain legal regimes depend to a large extent on its ability to develop proprietary products and technologies and to maintain adequate protection of its intellectual property in the United States and other countries; this becomes increasingly important as Sema4 expands its operations and enters into strategic collaborations with partners to develop and commercialize products. The laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States, and Sema4 may encounter difficulties in establishing and enforcing its proprietary rights outside of the United States. In addition, the proprietary positions of companies developing and commercializing tools for molecular diagnostics, including Sema4’s, generally are uncertain and involve complex legal and factual questions. This uncertainty may materially affect Sema4’s ability to defend or obtain patents or to address the patents and patent applications owned or controlled by its collaborators and licensors.
Any of these factors could adversely affect Sema4’s ability to obtain commercially relevant or competitively advantageous patent protection for its products.
If patent regulations or standards are modified, such changes could have a negative impact on Sema4’s business.
From time to time, the U.S. Supreme Court, other federal courts, the U.S. Congress or the USPTO may change the standards of patentability and validity of patents within the cancer screening and diagnostics space, and any such changes could have a negative impact on its business.
There have been several cases involving “gene patents” and diagnostic claims that have been considered by the U.S. Supreme Court. In March 2012, the Supreme Court in Mayo Collaborative Services v. Prometheus Laboratories, Inc, found a patented diagnostic method claim unpatentable because the relationship between a metabolite concentration and optimized dosage was a patent-ineligible “law of nature.” In June 2013, the Supreme Court ruled in ACLU v. Myriad Genetics, Inc, that an isolated genomic DNA sequence is not patent eligible while cDNA is eligible. The Prometheus and Myriad decisions, as well as subsequent case law, affect the legal concept of subject matter eligibility by seemingly narrowing the scope of the statute defining patentable inventions.
In December 2014 and again in 2019, the USPTO published revised guidelines for patent examiners to apply when examining process claims for patent eligibility in view of several recent Supreme Court decisions, including Mayo, Association for Molecular Pathology v. Myriad Genetics, Inc., and Alice Corporation Pty. Ltd. v. CLS Bank International, and others. The guidance indicates that claims directed to a law of nature, a natural phenomenon, or
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an abstract idea that do not meet the eligibility requirements should be rejected as non-statutory, patent ineligible subject matter. While these guidelines may be subject to review and modification by the USPTO over time, Sema4 cannot assure you that its intellectual property strategy or patent portfolio will not be negatively impacted by the decisions described above, rulings in other cases or changes in guidance or procedures issued by the USPTO.
Additional substantive changes to patent law, whether new or associated with the America Invents Act — which substantially revised the U.S. patent system — may affect Sema4’s ability to obtain, enforce or defend its patents. Accordingly, it is not clear what, if any, impact these substantive changes will ultimately have on the cost of prosecuting Sema4’s patent applications, its ability to obtain patents based on its discoveries and its ability to enforce or defend its issued patents, all of which could have a material adverse effect on its business.
If Sema4 is not able to adequately protect its trade secrets and other proprietary information, including the databases it manages and to which it has access, the value of its technology and products could be significantly diminished.
Sema4 relies on trade secret and proprietary know-how protection for its confidential and proprietary information and have taken security measures to protect this information. These measures, however, may not provide adequate protection. For example, Sema4 has a policy of requiring its consultants, advisors and collaborators, including, for example, its strategic collaborators with whom Sema4 seek to develop and commercialize products, to enter into confidentiality agreements and its employees to enter into invention, non-disclosure and in certain cases non-compete agreements. However, breaches of Sema4’s physical or electronic security systems, or breaches caused by its employees who failing to abide by their confidentiality obligations during or upon termination of their employment with it, could compromise these protection efforts. Any action Sema4 take to enforce its rights may be time-consuming, expensive, and possibly unsuccessful. Even if successful, the resulting remedy may not adequately compensate Sema4 for the harm caused by the breach. These risks are heightened in countries where laws or law enforcement practices may not protect proprietary rights as fully as in the United States or Europe. Any unauthorized use or disclosure of, or access to, Sema4’s trade secrets, know-how or other proprietary information, whether accidentally or through willful misconduct, could have a material adverse effect on its programs and its strategy, and on its ability to compete effectively.
If Sema4’s trademarks and trade names are not adequately protected, it may not be able to build name recognition in its markets of interest, and its business may be adversely affected.
Failure to maintain Sema4’s trademark registrations, or to obtain new trademark registrations in the future, could limit its ability to protect its trademarks and impede its marketing efforts in the countries in which Sema4 operates. Sema4 may not be able to protect its rights to trademarks and trade names which Sema4 may need to build name recognition with potential partners or customers in its markets of interest. As a means to enforce Sema4’s trademark rights and prevent infringement, Sema4 may be required to file trademark claims against third parties or initiate trademark opposition proceedings. This can be expensive and time-consuming, and possibly unsuccessful. Sema4’s registered or unregistered trademarks or trade names may be challenged, infringed, circumvented, declared generic or determined to infringe on other marks.
Sema4’s pending trademark applications in the United States and in other foreign jurisdictions where Sema4 may file may not be successful. Even if these applications result in registered trademarks, third parties may challenge these trademarks in the future. Over the long term, if Sema4 is unable to establish name recognition based on its trademarks and trade names, then it may not be able to compete effectively, and its business may be adversely affected.
Litigation or other proceedings resulting from either third-party claims of patent infringement, or asserting infringement by third parties of Sema4’s technology, could be costly, time-consuming, and could limit its ability to commercialize its products or services.
Sema4’s success depends in part on its non-infringement of the patents or intellectual property rights of third parties, and its ability to successfully prevent third parties from infringing its intellectual property. Sema4 operates in a crowded technology area in which there has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the genetic diagnostics industry. Third parties, including Sema4’s
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competitors, have asserted and may in the future assert that Sema4 is infringing their intellectual property rights. Sema4 may also become subject to and/or initiate future intellectual property litigation as its product portfolio and the level of competition in its industry grow.
Because the U.S. Patent & Trademark Office, or USPTO, maintains patent applications in secrecy until a patent application publishes or the patent is issued, Sema4 has no way of knowing if others may have filed patent applications covering technologies used by it or its partners. Additionally, there may be third-party patents, patent applications and other intellectual property relevant to Sema4’s technologies that may block or compete with its technologies. From time-to-time Sema4 has received correspondence from third parties alleging to hold intellectual property rights that could block its development or commercialization of products. While none of these inquiries to date have had any material effect on it, Sema4 may receive inquiries in the future that could have a material effect on its business. Even if third-party claims are without merit, defending a lawsuit may result in substantial expense to Sema4 and may divert the attention of management and key personnel. In addition, Sema4 cannot provide assurance that it would prevail in any such suits to the extent necessary to conduct its business according to its strategic plan or that the damages or other remedies, if any, awarded against it would not be substantial. Claims of intellectual property infringement may require that Sema4, or its strategic partners, enter into unsustainably high royalty or license agreements with third parties that may only be available on unacceptable terms, if at all. In addition, Sema4 could experience delays in product introductions or sales growth while Sema4 attempts to develop non-infringing alternatives. These claims could also result in injunctions against the further development and commercial sale of services or products containing Sema4’s technologies, which would have a material adverse effect on its business, financial condition and results of operations.
Further, patents and patent applications owned by Sema4 may become the subject of interference proceedings in the USPTO to determine priority of invention, which could result in substantial cost to Sema4 as well as a possible adverse decision as to the priority of invention of the patent or patent application involved. An adverse decision in an interference proceeding may result in the loss of rights under a patent or patent application subject to such a proceeding. Sema4 cannot predict whether, or offer any assurance that, the patent infringement claims may initiate in the future will be successful. Sema4 is and may become subject to counterclaims by patent infringement defendants. Sema4’s patents may be declared invalid or unenforceable, or narrowed in scope. Even if Sema4 prevails in an infringement action, Sema4 cannot assure you that it would be adequately compensated for the harm to its business. If Sema4 is unable to enjoin third-party infringement, its revenues may be adversely impacted and it may lose market share; and such third-party product may continue to exist in the market, but fail to meet its regulatory or safety standards, thereby causing irreparable harm to Sema4’s reputation as a provider of quality products, which in turn could result in loss of market share and have a material adverse effect on its business, financial condition and its results of operations.
In addition, Sema4’s agreements with some of its customers, suppliers, and other entities with whom Sema4 does business require it to defend or indemnify these parties to the extent they become involved in patent infringement claims, including the types of claims described in this risk factor. Sema4 has agreed, and may in the future agree, to defend or indemnify third parties if Sema4 determines it to be in the best interests of its business relationships. If Sema4 is required or agree to defend or indemnify third parties in connection with any infringement claims, Sema4 could incur significant costs and expenses that could adversely affect its business, financial condition and results of operations.
Sema4’s use of open-source software could subject it to possible litigation or cause Sema4 to subject its platform to unwanted open-source license conditions that could negatively impact its sales.
A limited but meaningful portion of Sema4’s platforms and products incorporate open-source software, and it will incorporate open-source software into other offerings or products in the future. Such open-source software is generally licensed by its authors or other third parties under open-source licenses. There is little legal precedent governing the interpretation of certain terms of these licenses, and therefore the potential impact of these terms on Sema4’s business is unknown and may result in unanticipated obligations regarding its products and technologies. If an author or other third party that distributes such open-source software were to allege that Sema4 had not complied with the conditions of one or more of these licenses, Sema4 could be required to incur significant legal expenses defending against such allegations. In addition, if Sema4 combines its proprietary software with open-source
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software in a certain manner, under some open-source licenses, Sema4 could be required to release the source code of its proprietary software, which could substantially help its competitors develop products that are similar to or better than Sema4’s products.
Sema4 relies on strategic collaborative and licensing arrangements with third parties to develop critical intellectual property. Sema4 may not be able to successfully establish and maintain such intellectual property.
The development and commercialization of Sema4’s products and services rely, directly or indirectly, upon strategic collaborations and licensing agreements with third parties. Such arrangements provide Sema4 with intellectual property and other business rights crucial to its product development and commercialization. Sema4 has incorporated licensed technology into its tests. Sema4’s dependence on licensing, collaboration and other similar agreements with third parties may subject it to a number of risks. There can be no assurance that any current contractual arrangements between Sema4 and third parties or between its strategic partners and other third parties will be continued on materially similar terms and will not be breached or terminated early. Any failure to obtain or retain the rights to necessary technologies on acceptable commercial terms could require Sema4 to re-configure its products and services, which could negatively impact their commercial sale or increase the associated costs, either of which could materially harm its business and adversely affect its future revenues and ability to achieve sustained profitability.
Sema4 expects to continue and expand its reliance on collaborative and licensing arrangements. Establishing new strategic collaborations and licensing arrangements is difficult and time-consuming. Discussions with potential collaborators or licensors may not lead to the establishment of collaborations on favorable terms, if at all. To the extent Sema4 agrees to work exclusively with one collaborator in a given area, its opportunities to collaborate with other entities could be limited. Potential collaborators or licensors may reject collaborations with it based upon their assessment of Sema4’s financial, regulatory or intellectual property position or other factors. Even if Sema4 successfully establishes new collaborations, these relationships may never result in the successful commercialization of any product or service. In addition, the success of the projects that require collaboration with third parties will be dependent on the continued success of such collaborators. There is no guarantee that Sema4’s collaborators will continue to be successful and, as a result, Sema4 may expend considerable time and resources developing products or services that will not ultimately be commercialized.
Sema4’s Risks Related to Cybersecurity, Privacy and Information Technology
Interruption, interference with, or failure of Sema4’s information technology and communications systems could hurt its ability to effectively provide its products and services, which could harm its reputation, financial condition, and operating results.
The availability of Sema4’s products and services and fulfillment of its customer contracts depend on the continuing operation of Sema4’s information technology and communications systems. Sema4’s systems are vulnerable to damage, interference, or interruption from terrorist attacks, natural disasters, the effects of climate change (such as sea level rise, drought, flooding, wildfires, and increased storm severity), power loss, telecommunications failures, computer viruses, ransomware attacks, computer denial of service attacks, phishing schemes, or other attempts to harm or access Sema4’s systems. Some of Sema4’s data centers are located in areas with a high risk of major earthquakes or other natural disasters. Sema4’s data centers are also subject to break-ins, sabotage, and intentional acts of vandalism, and, in some cases, to potential disruptions resulting from problems experienced by facility operators. Some of Sema4’s systems are not fully redundant, and disaster recovery planning cannot account for all eventualities.
The occurrence of a natural disaster, closure of a facility, or other unanticipated problems at Sema4’s data centers could result in lengthy interruptions in its service. In addition, Sema4’s products and services are highly technical and complex and may contain errors or vulnerabilities, which could result in interruptions in or failure of its services or systems.
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Security breaches, privacy issues, loss of data and other incidents could compromise sensitive, protected, or personal information related to Sema4’s business, could prevent it from accessing critical information, and could expose it to regulatory liability, which could adversely affect its business.
In the ordinary course of its business, Sema4 collects and stores sensitive data, including protected health information, or PHI, personally identifiable information, genetic information, credit card information, intellectual property and proprietary business information owned or controlled by Sema4 or its customers, payers and other parties. Sema4 manages and maintains its applications and data utilizing a combination of on-site systems, managed data center systems and cloud-based systems. Sema4 also communicates PHI and other sensitive patient data through its various customer tools and platforms. In addition to storing and transmitting sensitive data that is subject to multiple legal protections, these applications and data encompass a wide variety of business-critical information including research and development information, commercial information, and business and financial information. Sema4 faces a number of risks relative to protecting this critical information, including loss of access risk, inappropriate disclosure, inappropriate modification, and the risk of its being unable to adequately monitor and modify its controls over its critical information. Any technical problems that may arise in connection with the data that Sema4 accesses and Sema4’s systems, including those that are hosted by third-party providers, could result in interruptions to its business and operations or exposure to security vulnerabilities. These types of problems may be caused by a variety of factors, including infrastructure changes, intentional or accidental human actions or omissions, software errors, malware, viruses, security attacks, fraud, spikes in customer usage and denial of service issues. From time to time, large third-party web hosting providers have experienced outages or other problems that have resulted in their systems being offline and inaccessible. Such outages could materially impact Sema4’s business and operations.
The secure processing, storage, maintenance and transmission of this critical information are vital to Sema4’s operations and business strategy, and it devotes significant resources to protecting such information. Although Sema4 takes what it believes to be reasonable and appropriate measures, including a formal, dedicated enterprise security program, to protect sensitive information from various compromises (including unauthorized access, disclosure, or modification or lack of availability), Sema4’s information technology and infrastructure may be vulnerable to attacks by hackers or viruses or breached due to employee error, malfeasance or other disruptions. Any such breach or interruption could compromise Sema4’s networks and the information stored therein could be accessed by unauthorized parties, altered, publicly disclosed, lost or stolen.
Further, Sema4’s some of customer tools and platforms are currently accessible through a portal and there is no guarantee that Sema4 can protect its portal them from a security breach. Unauthorized access, loss or dissemination could also disrupt Sema4’s operations (including its ability to conduct its analyses, provide test results, bill payers or patients, process claims and appeals, provide customer assistance, conduct research and development activities, collect, process and prepare company financial information, provide information about its tests and other patient and physician education and outreach efforts through its website, and manage the administrative aspects of its business) and damage its reputation, any of which could adversely affect Sema4’s business. In addition to data security risks, Sema4 also face privacy risks. Should Sema4 actually violate, or be perceived to have violated, any privacy promises it makes to patients or consumers, it could be subject to a complaint from an affected individual or interested privacy regulator, such as the FTC, a state Attorney General, an EU Member State Data Protection Authority, or a data protection authority in another international jurisdiction. This risk is heightened given the sensitivity of the data Sema4 collects.
Any security compromise that causes an apparent privacy violation could also result in legal claims or proceedings; liability under federal, state, foreign, or multinational laws that regulate the privacy, security, or breach of personal information, such as but not limited to the HIPAA, HITECH, state data security and data breach notification laws, the EU’s GDPR, the UK Data Protection Act of 2018; and related regulatory penalties. Penalties for failure to comply with a requirement of HIPAA or HITECH vary significantly, and, depending on the knowledge and culpability of the HIPAA-regulated entity, may include civil monetary penalties of up to $1.5 million per calendar year for each provision of HIPAA that is violated. A person who knowingly obtains or discloses individually identifiable health information in violation of HIPAA may face a criminal penalty of up to $50,000 and up to one-year imprisonment. The criminal penalties increase if the wrongful conduct involves false pretenses or the intent to sell, transfer or use identifiable health information for commercial advantage, personal gain or malicious
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harm. Penalties for unfair or deceptive acts or practices under the FTC Act or state Unfair and Deceptive Acts and Practices, or UDAP, statutes may also vary significantly.
There has been unprecedented activity in the development of data protection regulation around the world. As a result, the interpretation and application of consumer, health-related and data protection laws in the United States, Europe and elsewhere are often uncertain, contradictory and in flux. The GDPR took effect on May 25, 2018. The GDPR took effect on May 25, 2018. The GDPR applies to any entity established in the EU as well as extraterritorially to any entity outside the EU that offers goods or services to, or monitors the behavior of, individuals who are located in the EU. The GDPR imposes strict requirements on controllers and processors of personal data, including enhanced protections for “special categories” of personal data, which includes sensitive information such as health and genetic information of data subjects. The GDPR also grants individuals various rights in relation to their personal data, including the rights of access, rectification, objection to certain processing and deletion. The GDPR provides an individual with an express right to seek legal remedies if the individual believes his or her rights have been violated. Failure to comply with the requirements of the GDPR or the related national data protection laws of the member states of the EU, which may deviate from or be more restrictive than the GDPR, may result in significant administrative fines issued by EU regulators. Maximum penalties for violations of the GDPR are capped at 20M euros or 4% of an organization’s annual global revenue, whichever is greater.
Further, the United Kingdom’s decision to leave the EU, often referred to as Brexit, has created uncertainty with regard to data protection regulation in the United Kingdom. In particular, it is still unclear whether the transfer of personal information from the EU to the United Kingdom will in the future remain lawful under the GDPR. The United Kingdom-EU post-Brexit trade deal provides that transfers of personal information to the United Kingdom will not be treated as restricted transfers to a non-EU country for a period of up to six months from January 1, 2021. However, unless the EU Commission makes an “adequacy finding” with respect to the United Kingdom before the end of that transition period, from that date the United Kingdom will be a “third country” under the GDPR and transfers of personal information from the EU to the United Kingdom will require an “adequacy mechanism,” such as the SCCs.
Additionally, the implementation of GDPR has led other jurisdictions to either amend or propose legislation to amend their existing data privacy and cybersecurity laws to resemble the requirements of GDPR. For example, on June 28, 2018, California adopted the CCPA. The CCPA regulates how certain for-profit businesses that meet one or more CCPA applicability thresholds collect, use, and disclose the personal information of consumers who reside in California. Among other things, the CCPA confers to California consumers the right to receive notice of the categories of personal information that will be collected by a business, how the business will use and share the personal information, and the third parties who will receive the personal information; the CCPA also confers rights to access, delete, or transfer personal information; and the right to receive equal service and pricing from a business after exercising a consumer right granted by the CCPA. In addition, the CCPA allows California consumers the right to opt out of the “sale” of their personal information, which the CCPA defines broadly as any disclosure of personal information to a third party in exchange for monetary or other valuable consideration. The CCPA also requires a business to implement reasonable security procedures to safeguard personal information against unauthorized access, use, or disclosure. California amended the law in September 2018 to exempt all PHI collected by certain parties subject to HIPAA, and further amended the law in September 2020 to clarify that de-identified data as defined under HIPAA will also be exempt from the CCPA. The California Attorney General’s final regulations implementing the CCPA took effect on August 14, 2020. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches resulting from a business’s failure to implement and maintain reasonable data security procedures that is expected to increase data breach litigation. In addition, California voters recently approved the California Privacy Rights Act of 2020, or CPRA, that is scheduled to go into effect on January 1, 2023. The CPRA would, among other things, amend the CCPA to give California residents the ability to limit the use of their sensitive information, provide for penalties for CPRA violations concerning California residents under the age of 16, and establish a new California Privacy Protection Agency to implement and enforce the law. Other jurisdictions in the United States are beginning to propose laws similar to CCPA. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation, which could increase Sema4’s potential liability and adversely affect its business, results of operations, and financial condition.
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It is possible the GDPR, CCPA and other emerging United States and international data protection laws may be interpreted and applied in manner that is inconsistent with Sema4’s practices. If so, this could result in government-imposed fines or orders requiring that Sema4 change its practices, which could adversely affect its business. In addition, these privacy laws and regulations may differ from country to country and state to state, and Sema4’s obligations under these laws and regulations vary based on the nature of its activities in the particular jurisdiction, such as whether Sema4 collects samples from individuals in the local jurisdiction, performs testing in the local jurisdiction, or processes personal information regarding employees or other individuals in the local jurisdiction. Complying with these various laws and regulations could cause Sema4 to incur substantial costs or require it to change its business practices and compliance procedures in a manner adverse to its business. Sema4 can provide no assurance that it is or will remain in compliance with diverse privacy and data security requirements in all of the jurisdictions in which it does business. Failure to comply with privacy and data security requirements could result in a variety of consequences, or damage to Sema4’s reputation, any of which could have a material adverse effect on its business.
Data privacy and security concerns relating to Sema4’s technology and its practices could damage its reputation, subject it to significant legal and financial exposure, and deter current and potential users or customers from using its products and services. Software bugs or defects, security breaches, and attacks on Sema4’s systems could result in the improper disclosure and use of user data and interference with its users and customers’ ability to use its products and services, harming its business operations and reputation.
Concerns about Sema4’s practices with regard to the collection, use, disclosure, or security of personal information or other data-privacy-related matters, even if unfounded, could harm its reputation, financial condition, and operating results. Sema4’s policies and practices may change over time as expectations regarding privacy and data change.
Sema4’s products and services involve the storage and transmission of protected health information and other personal information, proprietary information, and bugs, theft, misuse, defects, vulnerabilities in its products and services, and security breaches expose it to a risk of loss of this information, improper use and disclosure of such information, litigation, and other potential liability. Systems and control failures, security breaches, failure to comply with Sema4’s privacy policies, and/or inadvertent disclosure of user data could result in government and legal exposure, seriously harm its reputation and brand and, therefore, its business, and impair its ability to attract and retain users or customers. Sema4 expects to continue to expend significant resources to maintain security protections that shield against bugs, theft, misuse, or security vulnerabilities or breaches.
Sema4 experiences cyber-attacks and other attempts to gain unauthorized access to its systems on a regular basis. Sema4 may experience future security issues, whether due to employee error or malfeasance or system errors or vulnerabilities in its or other parties’ systems, which could result in significant legal and financial exposure. Government inquiries and enforcement actions, litigation, and adverse press coverage could harm its business. Sema4 may be unable to anticipate or detect attacks or vulnerabilities or implement adequate preventative measures. Attacks and security issues could also compromise trade secrets and other sensitive information, harming its business.
While Sema4 has dedicated significant resources to privacy and security incident response capabilities, including dedicated worldwide incident response teams, its response process may not be adequate, may fail to accurately assess the severity of an incident, may not respond quickly enough, or may fail to sufficiently remediate an incident. As a result, Sema4 may suffer significant legal, reputational, or financial exposure, which could harm its business, financial condition, and operating results.
Sema4 depends on its scientific computing and information technology and management systems and any failure of these systems could harm its business.
Sema4 depends on scientific computing and information technology and management systems, including third-party cloud computing infrastructure, operating systems and artificial intelligence platforms, for significant elements of its operations, including its laboratory information management system, clinical database, analytical platform,
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laboratory workflow tools, customer and collaborator reporting and related functions. Sema4 also depends on its proprietary workflow software to support new product and service launches and regulatory compliance.
Sema4 uses complex software processes and bioinformatic pipelines to manage samples and evaluate sequencing result data. These are subject to initial design or ongoing modifications which may result in unanticipated issues that could cause variability in patient results, leading to service disruptions or errors, resulting in liability.
Sema4 has installed, and expects to expand, a number of enterprise software systems that affect a broad range of business processes and functional areas, including systems laboratory operations, handling human resources, financial controls and reporting, contract management, regulatory compliance and other infrastructure operations, and patient consent and information management. In addition to these business systems, Sema4 has installed, and intends to extend, the capabilities of both its preventative and detective security controls by augmenting the monitoring and alerting functions, the network design and the automatic countermeasure operations of its technical systems. These information technology and telecommunications systems support a variety of functions, including laboratory operations, test validation, sample tracking, quality control, customer service support, billing and reimbursement, research and development activities, scientific and medical curation and general administrative activities. In addition, Sema4’s third-party billing and collections provider depends upon technology and telecommunications systems provided by outside vendors.
Information technology and telecommunications systems are vulnerable to damage from a variety of sources, including telecommunications or network failures, malicious internal or external human acts and natural disasters. Moreover, despite network security and back-up measures, some of its servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite the precautionary measures Sema4 has taken to prevent unanticipated problems that could affect its information technology and telecommunications systems, failures or significant downtime of these systems or those used by its collaborators or subcontractors could prevent it from conducting its comprehensive screening analysis, clinical diagnostics and drug discovery, preparing and providing reports to researchers, clinicians and its collaborators, billing payers, handling physician inquiries, conducting research and development activities and managing the administrative aspects of its business. Any disruption or loss of information technology or telecommunications systems on which critical aspects of Sema4’s operations depend could have an adverse effect on its business and its reputation, and Sema4 may be unable to regain or repair its reputation in the future.
Risks Related to Sema4 Being a Public Company
Sema4 will incur increased costs and demands on management as a result of compliance with laws and regulations applicable to public companies, which could harm its operating results.
Sema4 has never been a public company. Following the Business Combination, the post-combination company could incur significant legal, accounting and other expenses, including costs associated with public company reporting requirements. In addition, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, as well as rules implemented by the SEC and Nasdaq, impose a number of requirements on public companies, including with respect to corporate governance practices. The SEC and other regulators have continued to adopt new rules and regulations and make additional changes to existing regulations that require the post-combination company’s compliance. In addition, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, enacted in 2010, includes significant corporate governance and executive-compensation-related provisions. The post-combination company’s management and other personnel will need to devote a substantial amount of time to these compliance and disclosure obligations. If these requirements divert the attention of the post-combination company’s management and personnel from other aspects of its business concerns, they could have a material adverse effect on its business, financial condition and results of operations. Moreover, these rules and regulations applicable to public companies substantially could increase the post-combination company’s legal, accounting and financial compliance costs, require that the post-combination company hire additional personnel and make some activities more time consuming and costly. It may also be more expensive for the post-combination company to obtain director and officer liability insurance as a public company.
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Risks Related to the Company and the Business Combination
Our Initial Stockholders have agreed to vote in favor of the Business Combination and the other proposals described in this proxy statement, regardless of how our public stockholders vote.
Unlike many other blank check companies in which the founders agree to vote their Founder Shares in accordance with the majority of the votes cast by the holders of public stock in connection with an initial business combination, our Initial Stockholders have agreed to vote any shares of common stock owned by them in favor of the Business Combination Proposal and the other proposals described in this proxy statement. As of the date hereof, our Initial Stockholders own shares equal to 20% of our issued and outstanding shares of common stock. Accordingly, it is more likely that the necessary stockholder approval will be received for the Business Combination than would be the case if our Initial Stockholders agreed to vote any shares of common stock owned by them in accordance with the majority of the votes cast by our public stockholders.
Our Sponsor, certain members of our Board and our officers have interests in the Business Combination that are different from or are in addition to other stockholders in recommending that stockholders vote in favor of approval of the Business Combination Proposal and approval of the other proposals described in this proxy statement.
When considering our Board’s recommendation that our stockholders vote in favor of the approval of the Business Combination Proposal, our stockholders should be aware that the directors and officers of the Company have interests in the Business Combination that may be different from, or in addition to, the interests of our stockholders. These interests include:
•the fact that our Initial Stockholders have agreed not to redeem any of the Founder Shares in connection with a stockholder vote to approve the Business Combination;
•the fact that our Sponsor will retain 11,068,750 Founder Shares upon the Closing;
•the fact that our Initial Stockholders have agreed to waive their rights to liquidating distributions from the Trust Account with respect to their Founder Shares if we fail to complete an initial business combination by the applicable deadline;
•if the Trust Account is liquidated, including in the event we are unable to complete an initial business combination within the required time period, our Sponsor has agreed to indemnify us to ensure that the proceeds in the Trust Account are not reduced below $10.00 per public share, or such lesser per public share amount as is in the Trust Account on the liquidation date, by the claims of prospective target businesses with which we have entered into an acquisition agreement or claims of any third party (other than our independent public accountants) for services rendered or products sold to us, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the Trust Account;
•the continued indemnification of our existing directors and officers and the continuation of our directors’ and officers’ liability insurance after the Business Combination;
•the fact that the fact that Joshua Ruch, Michael Pellini and Rachel Sherman may join as board members of the post-combination company (dependent on the approval of the Director Election Proposal), and Nat Turner, Emily Leproust and Eli Casdin will continue as board members of the post-combination company, and each shall be entitled to receive compensation for serving on the board of directors of the post-combination company;
•the fact that our Sponsor, officers and directors will lose their entire investment in us and will not be reimbursed for any out-of-pocket expenses if an initial business combination is not consummated by the applicable deadline;
•that Corvex Master Fund LP, Corvex Select Equity Master Fund LP, Corvex Dynamic Equity Select Master Fund LP, and JS Capital LP, funds that are advised by an affiliate of the Sponsor, have entered into
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Subscription Agreements with the Company, pursuant to which such affiliates have committed to purchase 240,000; 3,696,000; 64,000; and 500,000 shares of common stock in the PIPE Investment, respectively, for an aggregate commitment of approximately $2,400,000; $36,960,000; $640,000; $5,000,000, respectively; and
•that Casdin Partners Master Fund, L.P., a fund that is advised by an affiliate of the Sponsor, has entered into a Subscription Agreement with the Company, pursuant to which the affiliate has committed to purchase 5,000,000 shares of common stock in the PIPE Investment for an aggregate commitment of approximately $50,000,000.
Our Initial Stockholders, including our Sponsor and our independent directors, hold a significant number of shares of our common stock. They will lose their entire investment in us if a business combination is not completed.
Our Initial Stockholders hold in the aggregate 11,068,750 Founder Shares, representing 20% of the total shares outstanding as of the date of this proxy. The Founder Shares will be worthless if we do not complete a business combination by the applicable deadline.
The Founder’s Shares are identical to the shares of common stock included in the public units, except that: (i) the Founder Shares are subject to certain transfer restrictions; (ii) our Initial Stockholders, officers and directors have entered into a letter agreement with us, pursuant to which they have agreed: (a) to waive their redemption rights with respect to their shares of common stock in connection with the completion of our Business Combination; (b) waive their redemption rights with respect to their shares of common stock in connection with a stockholder vote to approve an amendment to our current certificate of incorporation to modify the substance or timing of our obligation to redeem 100% of our public shares if we do not complete our initial business combination within 18 months from the closing of the IPO or to provide for redemption in connection with a business combination; and (c) to waive their rights to liquidating distributions from the Trust Account with respect to their Founder Shares if we fail to complete our initial business combination by the applicable deadline (although they will be entitled to liquidating distributions from the Trust Account with respect to any public shares they hold if we fail to complete our initial business combination by the applicable deadline.
The personal and financial interests of our officers and directors may have influenced their motivation in identifying and selecting Sema4, completing a business combination with Sema4 and may influence their operation of the post-combination company following the Business Combination. This risk may become more acute as the deadline of the applicable deadline for completing an initial business combination nears.
Our Sponsor, directors or officers or their affiliates may elect to purchase shares or warrants from public stockholders, which may influence a vote on a proposed Business Combination and the other proposals described in this proxy statement and reduce the public “float” of our common stock.
Our Sponsor, directors or officers or their affiliates may purchase shares in privately negotiated transactions or in the open market either prior to or following the completion of our Business Combination, although they are under no obligation to do so. Such a purchase may include a contractual acknowledgement that such stockholder, although still the record holder of our shares is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that our Sponsor, directors, officers or their affiliates purchase shares in privately negotiated transactions from public stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. The purpose of such purchases could be to vote such shares in favor of the Business Combination and thereby increase the likelihood of obtaining stockholder approval of the Business Combination or to satisfy closing conditions in the Merger Agreement regarding required amounts in the Trust Account and the proceeds from the PIPE Investment equaling or exceeding certain thresholds where it appears that such requirements would otherwise not be met. The purpose of any such purchases of public warrants could be to reduce the number of public warrants outstanding or to vote such warrants on any matters submitted to the warrant holders for approval in connection with our initial business combination. This may result in the completion of our Business Combination that may not otherwise have been possible. Any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchasers are subject to such reporting requirements.
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In addition, if such purchases are made, the public “float” of our common stock and the number of beneficial holders of our securities may be reduced, possibly making it difficult to obtain or maintain the quotation, listing or trading of our securities on the NYSE or another national securities exchange or reducing the liquidity of the trading market for our common stock.
Our public stockholders will experience dilution as a consequence of, among other transactions, the issuance of common stock as consideration in the Business Combination and the PIPE Investment. Having a minority share position may reduce the influence that our current stockholders have on the management of the post-combination company.
The issuance of the common stock in the Business Combination and in the PIPE Investment will dilute the equity interest of our existing stockholders and may adversely affect prevailing market prices for our public shares and/or public warrants.
It is anticipated that, upon completion of the Business Combination, assuming no redemptions: (i) the Company’s public stockholders (other than the PIPE Investors) will retain an ownership interest of approximately 19.3% in the post-combination company; (ii) the PIPE Investors will own approximately 12.7% (excluding certain PIPE Investors, who owned shares pre-transaction) of the post-combination company (such that public stockholders, including PIPE Investors, will own approximately 32% (adding the foregoing 2 subsets) of the post-combination company); (iii) our Initial Stockholders (including our Sponsor) will own approximately 24.2% of the post-combination company; and (iv) the former Sema4 equity holders are expected to hold, in the aggregate, approximately 63.1% of the issued and outstanding shares of Company common stock. The foregoing percentage excludes 29,367,501 options for the purchase of 29,367,501 shares of Company common stock, which are authorized and subject to stock options but will not yet be issued at closing, as further described in the pro forma capitalization table in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information — Description of the Transaction.” The PIPE Investors have agreed to purchase in the aggregate 35,000,000 shares of common stock, for approximately $350,000,000 of gross proceeds, in the PIPE Investment. The ownership percentage with respect to the post-combination company following the Business Combination does not take into account (i) warrants to purchase common stock that will remain outstanding immediately following the Business Combination, (ii) the issuance of Earn-Out Shares to the Sema4 equity holders should the earn-out conditions in the Merger Agreement be satisfied or (iii) the issuance of any shares upon completion of the Business Combination under the Incentive Plan or the ESPP, copies of which are attached to this proxy statement as Annex D and Annex E, respectively Depending on the number of public shares redeemed, our current stockholders could own a majority of the voting rights in the post-combination company, but would not have effective control over the post-combination company. For more information, please see the sections entitled “Summary of the Proxy Statement — Impact of the Business Combination on the Company’s Public Float,” “Unaudited Pro Forma Condensed Combined Financial Information”, “Proposal No. 5 — Approval of the Incentive Plan” and “Proposal No. 6 — ESPP Proposal.”
Nasdaq may not list the post-combination company’s securities on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
In connection with the Business Combination, in order to obtain the listing of the post-combination company’s securities on Nasdaq, we will be required to demonstrate compliance with Nasdaq’s initial listing requirements, which are more rigorous than the NYSE’s continued listing requirements. We will seek to have the post-combination company’s securities listed on Nasdaq upon consummation of the Business Combination. We cannot assure you that we will be able to meet all initial listing requirements. Even if the post-combination company’s securities are listed on Nasdaq, we may be unable to maintain the listing of its securities in the future.
If we fail to meet the initial listing requirements and Nasdaq does not list the post-combination company’s securities on its exchange, Sema4 would not be required to consummate the Business Combination. In the event that Sema4 elected to waive this condition, and the Business Combination was consummated without the post-combination company’s securities being listed on Nasdaq or on another national securities exchange, we could face significant material adverse consequences, including:
•a limited availability of market quotations for our securities;
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•reduced liquidity for our securities;
•a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;
•a limited amount of news and analyst coverage; and
•a decreased ability to issue additional securities or obtain additional financing in the future.
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” If the post-combination company’s securities were not listed on Nasdaq, such securities would not qualify as covered securities and we would be subject to regulation in each state in which we offer our securities because states are not preempted from regulating the sale of securities that are not covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While we are not aware of a state, other than the State of Idaho, having used these powers to prohibit or restrict the sale of securities issued by blank check companies, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Resales of the shares of common stock included in the stock consideration could depress the market price of our common stock.
Resales of the shares of common stock included in the stock consideration could depress the market price of our common stock
We will have approximately 228,865,552 million shares of common stock outstanding immediately following the Business Combination, and there may be a large number of shares of common stock sold in the market following the completion of the Business Combination or shortly thereafter. The shares held by the Company’s public stockholders are freely tradable, and the shares of common stock held by the PIPE Investors will be freely tradable following effectiveness of the registration statement that we have agreed to file in connection with the Business Combination covering the resales of such shares. In addition, the Company will be obligated to register the resale of shares of common stock issued as merger consideration, which shares will become available for resale following the expiration of any applicable lockup period. We also expect that Rule 144 will become available for the resale of shares of our common stock that are not registered for resale once one year has elapsed from the date that we file the Current Report on Form 8-K following the Closing that includes the required Form 10 information that reflects we are no longer a shell company. Such sales of shares of common stock or the perception of such sales may depress the market price of our common stock.
We have no operating history and are subject to a mandatory liquidation and subsequent dissolution requirement. As such, there is a risk that we will be unable to continue as a going concern if we do not consummate an initial business combination by the applicable deadline. If we are unable to effect an initial business combination by the applicable deadline, we will be forced to liquidate and our warrants will expire worthless.
We are a blank check company, and as we have no operating history and are subject to a mandatory liquidation and subsequent dissolution requirement, there is a risk that we will be unable to continue as a going concern if we do not consummate an initial business combination by the applicable deadline. Unless we amend our current certificate of incorporation to extend the life of the Company and certain other agreements into which we have entered, if we do not complete an initial business combination by the applicable deadline, we will: (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds held in the Trust Account and not previously released to us to pay our franchise and income taxes (less up to $100,000 of interest to pay dissolution expenses) divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law; and
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(iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our Board, dissolve and liquidate, subject in each case to our obligations under the DGCL to provide for claims of creditors and the requirements of other applicable law. In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the initial public offering price per public unit in the IPO. In addition, if we fail to complete an initial business combination by the applicable deadline, there will be no redemption rights or liquidating distributions with respect to our public warrants or the private placement warrants, which will expire worthless. We expect to consummate the Business Combination and do not intend to take any action to extend the life of the Company beyond the applicable deadline if we are unable to effect an initial business combination by that date.
Even if we consummate the Business Combination, there is no guarantee that the public warrants will ever be in the money, and they may expire worthless and the terms of our public warrants may be amended.