UPDATE:  After having a chance to go through the documents that were filed this morning, additional information has been included below in blue.  This appears to be a highly negotiated transaction given the number of stipulated conditions and requirements.  To that end, we now have some detail on all the moving parts to this transaction and there are a lot.  Specifically, CHAC has entered into a number of agreements with public shareholders to secure the cash in trust at closing of $50 million. Additionally, it would appear that there were a variety of options that those public shareholders could sign up for (see below), but the nuts and bolts of the result means that BiomX can confidently head into closing knowing they will have a minimum $50 million in trust out of the $70 million raised at IPO.

HOWEVER, What’s interesting about all of the agreements with the public shareholders for $50 million, which requires them not to sell into the market or redeem, is that it effectively creates a “low float-ish” situation right now. That is because the $50 million worth of shares (out of $70 million in the IPO) cannot trade today.  So technically, that float has already been reduced to just 2,000,000 shares.  As a result, even a small amount of demand has pushed the share price to $10.42 (currently).  Plus, post-closing that 2,000,000 float could be further reduced if there are any redemptions.  This is a fairly creative way of using a low float to your advantage AHEAD of a closing to get the share price above redemption value.  

Let’s keep an eye on how this one trades between now a closing.

Chardan Healthcare Acquisition Corp. (CHAC) announced this evening that it has entered into a business combination  agreement with BiomX Ltd. (“BiomX”). BiomX is a preclinical stage microbiome company developing both natural and engineered phage cocktails designed to target and destroy bacteria that affect the appearance of skin, as well as harmful bacteria in chronic diseases, such as IBD, PSC, and cancer. BiomX discovers and validates proprietary bacterial targets and customizes phage compositions against these targets.

The company’s pipeline includes preclinical candidates for acne-prone skin, inflammatory bowel disease (IBD), primary sclerosing cholangitis (PSC), and colorectal cancer (CRC). BiomX’s product for acne-prone skin is anticipated to begin clinical testing by the end of 2019. The combined company will continue to be led by BiomX’s experienced management team headed by Chief Executive Officer Jonathan Solomon.

CHAC has entered into a mix of commitments including purchase and sale, backstop, and voting agreements with BiomX and with investors — including OrbiMed, RTW Investment, Johnson & Johnson Innovation – JJDC, Inc. (JJDC), Takeda Ventures, Inc., Seventure Partners’ Health for Life Capital I, SBI Japan-Israel Innovation Fund, as well as RM Global Partners (RMGP) BioPharma Investment Fund — so that the $50 million minimum closing condition for the transaction has been satisfied prior to today’s announcement.

Post-closing, Mr. Solomon and three current BiomX directors will join Mr. Jonas Grossman and Dr. Gbola Amusa from CHAC, on the seven-person board of directors. An additional board member will be designated by BiomX.

Conference Call Scheduled 
CHAC will host a conference call to discuss the proposed business combination with the investment community on July 17, 2019 at 8:30 AM EDT.

(877) 705-6003 toll-free in the U.S.
(201) 493-6725 internationally

The conference ID number is 13692693.

The conference call webcast will be available at http://public.viavid.com/index.php?id=135425.

Quick takes: There’s not a lot to go on just yet since none of the agreements or presentation were filed as of this evening, just the press release was put forth. However, post-conference call and filings, we will update this post with some additional analysis.

TRANSACTION DETAILS

• CHAC will issue 16.625 million shares and vested securities to current security holders of BiomX.

Additional Agreements

In addition to the Merger Agreement:

• CHAC’s sponsor, agreed that if the Aggregate Investment Amount, is less than $70,000,000, the sponsor will forfeit a number of founder shares equal to:
  • (a) 500,000 shares of CHAC common stock; multiplied by
  • (b) the quotient of: (i) the absolute value of the difference between $70,000,000 minus the Aggregate Investment Amount; divided by (ii) $20,000,000, rounded to the nearest whole share; provided, however, that in no event will the sponsor be required to forfeit more than 500,000 shares of CHAC common stock.
• CHAC’s sponsor agreed to purchase up to $2.5 million of shares of CHAC’s common stock (either directly from CHAC (at a price of $10.00 per share) or from public stockholders (at prices no greater than the redemption amount per share) at the Closing in the event that the Aggregate Investment Amount would be less than $50 million but greater than $47,499,999.
• CHAC entered into voting agreements with holders of 1,000,000 shares of its common stock pursuant to which such stockholders agreed to vote in favor of the transactions contemplated by the Merger Agreement and to not redeem or sell such shares.
• CHAC and certain current CHAC public shareholders entered into agreements with certain of BiomX’s current shareholders pursuant to which such BiomX shareholders agreed to purchase an aggregate of 1,879,075 shares of CHAC’s common stock at Closing from such CHAC public stockholders at a price of $10.00 per share. In addition, CHAC agreed to pay such selling CHAC public shareholders an amount equal to the difference between the redemption price per share at the Closing minus $10.00 per share. The selling CHAC public shareholders agreed to vote in favor of the transactions contemplated by the Merger Agreement and not to redeem or sell to third parties such shares of CHAC common stock.
• CHAC entered into a letter agreement with certain BiomX shareholders to sell additional CHAC Shares to them in the event that certain events occur.
• CHAC entered into agreements with investors that agreed to purchase up to 810,000 of shares of CHAC common stock at CHAC’s request and not to redeem such shares of CHAC common stock in connection with the Closing.
• Certain third parties entered into agreements to purchase 1,234,908 shares of CHAC’s common stock from certain of its current public stockholders at the Closing. The selling CHAC public stockholders agreed to vote in favor of the transactions contemplated by the Merger Agreement and not to redeem or sell to third parties such shares of CHAC common stock.
• BiomX shareholders owning 86% of the voting power in BiomX entered into support agreements with CHAC pursuant to which such shareholders agreed to vote in favor of the transactions contemplated by the Merger Agreement at each meeting of the shareholders of BiomX.

Earnout

BiomX shareholders will be entitled to receive earn-out consideration of an additional six million CHAC shares (Based on VWAP of 20 out of any 30-day period).

• 2.0 million shares if the share price exceeds $16.50 by fiscal year 2021
• 2.0 million shares if the share price exceeds $22.75 by fiscal year 2023
• 2.0 million shares if the share price exceeds $29.00 by fiscal year 2025

Conditions to Closing

BiomX Conditions:

• CHAC complying in all material respects with all of its obligations required to be performed pursuant to the covenants in the Merger Agreement.
• The Aggregate Investment Amount shall equal or exceed $50,000,000.
• The aggregate amount of indebtedness, expenses and other liabilities of CHAC that remain unpaid as of immediately prior to the Closing is less than $1,000,000.
• The daily volume weighted average price of a share of CHAC common Stock for the 10 trading days immediately preceding the Closing date shall equal at least $9.50.
• The immediately available funds deposited by certain BiomX shareholders into an escrow account established for the purposes of holding the cash proceeds paid by such BiomX shareholders to purchase shares of CHAC common stock from current CHAC public stockholders, shall equal or exceed $20,000,000.

CHAC Conditions:

• There shall have been no continuing event, change or occurrence which individually or together with any other event, change or occurrence, would reasonably be expected to have a material adverse effect on BiomX.
• The immediately available funds deposited by certain BiomX shareholders into an escrow account established for the purposes of holding the cash proceeds paid by such BiomX shareholders to purchase shares of CHAC common stock from current CHAC public stockholders, shall equal or exceed $20,000,000.

Termination

• CHAC, if the closing has not occurred on or prior to October 31, 2019 (the “Outside Closing Date”); provided, that if the SEC has not declared CHAC’s proxy statement effective on or prior to September 30, 2019, the Outside Closing Date shall be automatically extended to November 30, 2019; provided, further, that CHAC is not in material breach of any of its obligations under the Merger Agreement

Board Composition

• Post-closing, BiomX CEO, Mr. Joseph Solomon, and three current BiomX directors will join Mr. Grossman and Dr. Amusa, from CHAC, on the seven-person board of directors. An additional board member will be designated by BiomX.

ADVISORS

• Chardan is acting as CHAC’s M&A and capital markets advisor.
• Cantor is acting as capital markets advisor to BiomX.
• Loeb & Loeb LLP and Meitar Liquornik Geva Leshem Tal are representing CHAC.
• Goodwin Procter LLP, Mayer Brown LLP and ZAG-S&W Zysman Aharoni Gayer & Co are representing BiomX.