QUESTIONS
AND ANSWERS ABOUT THE PROPOSALS FOR CHAC stockholders
Q: What
is the purpose of this document?
A: Chardan Healthcare Acquisition Corp., a Delaware corporation (“CHAC”), BiomX Ltd., an Israeli
company (“BiomX”), and CHAC Merger Sub Ltd., an Israeli company and wholly-owned subsidiary of CHAC (the “Merger
Sub”), have agreed to a Business Combination under the terms of a Merger Agreement, dated as of July 16, 2019, by and among
CHAC, the Merger Sub and BiomX. The consummation of the transactions contemplated by the Merger Agreement are referred to collectively
as the Business Combination and the proposal to approve the Business Combination is referred to as the Business Combination Proposal.
The Merger Agreement is attached to this proxy statement as Annex A, and is incorporated into this proxy statement by reference.
You are encouraged to read this proxy statement, including “Risk Factors” and all the annexes hereto.
CHAC
stockholders are being asked to consider and vote upon a proposal to adopt the Merger Agreement, pursuant to which CHAC will acquire
all of the issued and outstanding shares and other equity interests of BiomX, which will merge with (and survive following its
merger with), the Merger Sub, and related Proposals.
The units (the “CHAC Units”) that were issued
in CHAC’s initial public offering (“Initial Public Offering”) each consist of one share of common stock of CHAC,
par value $0.0001 per share (the “CHAC Shares”), and one redeemable warrant to purchase one-half of a CHAC Share,
with every two redeemable warrants entitling the holder thereof to purchase one CHAC Share for $11.50 per full share (the
“CHAC Warrants”). Simultaneously with the consummation of the Initial Public Offering, we consummated the private
placement of an aggregate of 2,900,000 warrants, each exercisable to purchase one CHAC Share for $11.50 per share (the “
Private CHAC Warrants”). CHAC stockholders (except for Chardan Investments, LLC, CHAC’s Initial Public Offering sponsor
(the “Sponsor”) and CHAC’s officers and directors) will be entitled to redeem their CHAC Shares for a pro rata
share of the trust account (currently anticipated to be no less than approximately $10.16 per share for stockholders) net of taxes
payable.
The
CHAC Units, CHAC Shares, and CHAC Warrants are currently listed on the NYSE American Stock Exchange.
This
proxy statement contains important information about the proposed Business Combination and the other matters to be acted upon
at the special meeting of CHAC stockholders. You should read it carefully.
Q: What
is being voted on?
A: Below
are the proposals on which CHAC stockholders are being asked to vote:
● To
approve the Merger Agreement, dated as of July 16, 2019 (the “Merger Agreement”) by and among CHAC, BiomX Ltd. (“BiomX”)
and CHAC Merger Sub Ltd. (the “Merger Sub”), and the transactions contemplated thereby, (collectively referred to
as the “Business Combination”). This proposal is referred to as the “Business Combination Proposal” or
“Proposal No. 1.”
● To
approve the amendment of the Amended and Restated Certificate of Incorporation of CHAC to increase the number of authorized shares of common stock from 30,000,000 to 60,000,000. This proposal is referred to as the
“Share Increase Proposal” or “Proposal No. 2.”
● To
approve the amendment of the Amended and Restated Certificate of Incorporation to classify the Board of Directors into three classes.
This proposal is referred to as the “Classified Board Proposal” or “Proposal No. 3,” and together with
the Share Increase Proposal, they are referred to as the “Amendment Proposals.”
● To
approve the Chardan Healthcare Acquisition Corp. 2019 Omnibus Long-Term Incentive Plan. This proposal is referred to as the “Equity
Plan Adoption Proposal” or “Proposal No. 4.”
● To
approve the issuance of more than 20% of the issued and outstanding common stock of CHAC pursuant to the terms of the Merger Agreement,
as required by NYSE American Listed Company Guide Sections 712 and 713. This proposal is referred to as the “NYSE Proposal”
or “Proposal No. 5.”
● To
approve the adjournment of the special meeting, if necessary or advisable, in the event CHAC does not receive the requisite stockholder
vote to approve the Business Combination. This proposal is called the “Business Combination Adjournment Proposal”
or “Proposal No. 6.”
Q: What is the
consideration being paid to BiomX securityholders?
A: The securityholders of BiomX that hold shares of BiomX
or vested options or warrants exercisable for shares of BiomX will receive an aggregate of 16,625,000 CHAC Shares or options or
warrants to purchase CHAC Shares, respectively, subject to reduction for indemnification claims as described in the section entitled
“The Merger Agreement.”
In addition, CHAC and certain current CHAC public stockholders
entered into agreements with certain of BiomX’s current shareholders pursuant to which, among other things, CHAC also agreed
to issue such BiomX shareholders the following number of additional shares in the aggregate subject to the achievement of the
conditions specified below:
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a.
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Following
the Closing, if the daily volume weighted average price of a share of CHAC common stock
in any 20 trading days within a 30 trading day period prior to January 1, 2022 is greater
than or equal to $16.50 per share, then CHAC shall issue 2,000,000 CHAC Shares.
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b.
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Following
the Closing, if the daily volume weighted average price of a share of CHAC common stock
in any 20 trading days within a 30 trading day period prior to January 1, 2024 is greater
than or equal to $22.75 per share, then CHAC shall issue 2,000,000 CHAC Shares.
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c.
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Following
the Closing, if the daily volume weighted average price of a share of CHAC common stock
in any 20 trading days within a 30 trading day period prior to January 1, 2026 is greater
than or equal to $29.00 per share, then CHAC shall issue 2,000,000 CHAC Shares.
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Q: Following the closing of the Business Combination,
what percentage of the combined company will the former CHAC public stockholders own?
A: Assuming there are no redemptions of our public shares,
and giving effect to the purchase and sale agreements referred to above, it is anticipated that upon completion of the Business
Combination, the ownership of the outstanding shares of the post-combination company will be as follows:
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●
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CHAC
public stockholders will own approximately 20%, excluding shares beneficially owned by
our Sponsor,
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●
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Our
Sponsor will own approximately 7%, and
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●
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BiomX
shareholders will own approximately 73%.
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The ownership percentages with respect
to the post-combination company following the Business Combination set forth above do not take into account (a) warrants to purchase
CHAC Shares that will remain outstanding immediately following the Business Combination; (b) stock options that will be issued
to holders of BiomX stock options and warrants, outstanding and unexercised as of immediately prior to the effective time of the
Business Combination; or (c) the issuance of any shares upon completion of the Business Combination, but does include an aggregate
of 1,437,500 shares of common stock to the Sponsor (“Founder Shares”), which will be converted into shares of common
stock at the Closing on a one-for-one basis. If the actual facts are different than these assumptions, the percentage ownership
retained by our public stockholders following the Business Combination will be different. The CHAC public warrants and private
placement warrants will become exercisable 30 days after the completion of the Business Combination and will expire five years
after the completion of the Business Combination or earlier upon redemption or liquidation.
Assuming no redemptions, the combined
company would have a pro forma valuation of approximately $254 million at a price of $10.00 per share and the securities issued
to the BiomX shareholders would have a value of $166.25 million at an assumed price of $10.00 per share.
For more information, please see the
section entitled “Unaudited Pro Forma Condensed Combined Financial Information.”
Q: Do
any of CHAC’s directors or officers have interests that may conflict with my interests with respect to the Business Combination?
A: CHAC’s
directors and officers have interests in the Business Combination that are different from your interests as a stockholder. You
should keep in mind the following interests of CHAC’s directors and officers:
In March 2018, CHAC issued the Founder Shares for an aggregate
purchase price of $25,000, an aggregate of 37,500 of which were subsequently sold to our independent directors for the same amount
that our Sponsor paid for them. On September 14, 2018, CHAC effectuated a 1.4-for-1 stock dividend resulting in an aggregate of
2,012,500 Founder Shares outstanding. The Founder Shares included an aggregate of up to 262,500 shares subject to forfeiture by
the Sponsor to the extent that the underwriters’ over-allotment was not exercised in full or in part, so that the Sponsor
would own 20% of the CHAC’s issued and outstanding shares after the Initial Public Offering (assuming the Sponsor did not
purchase any Public Shares in the Initial Public Offering). The underwriters’ over-allotment option expired unexercised
on February 4, 2019. As such, 262,500 Founder Shares were forfeited resulting in 1,750,000 Founder Shares being issued and outstanding.
In addition, in conjunction with the closing of the Initial Public Offering, an affiliate of the Sponsor purchased 2,900,000 warrants,
each warrant to purchase one CHAC Share, at a price of $0.40 per warrant. Each of our officers has a pecuniary interest in the
shares held by the Sponsor. Therefore, in light of the amount of consideration paid for the foregoing securities, CHAC’s
directors and officers will likely benefit from the completion of the Business Combination even if the Business Combination causes
the market price of CHAC’s securities to significantly decrease. The likely benefit to CHAC’s directors and officers
may influence their motivation for promoting the Business Combination and/or soliciting proxies for the approval of the Business
Combination Proposal. See “Risk Factors—Risks Related to CHAC’s Business—CHAC’s directors and
officers may have certain conflicts in determining to recommend the Business Combination with BiomX, since certain of their interests,
and certain interests of their affiliates and associates, are different from, or in addition to, your interests as a stockholder.”
If
CHAC does not consummate the Business Combination by the date that is 24 months from the closing of the Initial Public Offering,
or December 18, 2020, CHAC will be required to dissolve and liquidate and the securities held by CHAC’s insiders will be
worthless because such holders have agreed to waive their rights to any liquidation distributions.
In addition, the exercise of CHAC’s directors’ and
officers’ discretion in agreeing to changes or waivers in the terms of the Business Combination may result in a conflict
of interest when determining whether such changes or waivers are appropriate and in CHAC stockholders’ best interests. See
“Risk Factors— Risks Related to CHAC’s Business—Because CHAC’s Sponsor and all of CHAC’s officers and
directors own CHAC Shares and CHAC Warrants which will not participate in liquidation distributions and, therefore, they may have
a conflict of interest in determining whether the Business Combination is appropriate.”
Q: When
and where is the special meeting of CHAC’s stockholders?
A: The
special meeting of CHAC stockholders will take place at the office of Loeb & Loeb LLP, 345 Park Avenue, New York, NY 10154
on October 23, 2019, at 10:00 a.m.
Q: Who
may vote at the special meeting of stockholders?
A: Only holders of record of CHAC Shares
as of the close of business on September 17, 2019 (the “Record Date”) may vote at the special meeting of stockholders.
As of September 17, 2019, there were 8,750,000 shares of CHAC Shares outstanding and entitled to vote. Assuming that all of CHAC’s
outstanding shares are present and entitled to vote at the meeting, 4,375,001 shares would be required to be voted in favor of
each Proposal in order approve such Proposal.
Public stockholders owning 3,032,773 shares have entered
into agreements pursuant to which they have agreed to vote in favor of the Proposals. In addition, CHAC’s initial stockholders
own 1,750,000 shares. Together with the 3,032,773 shares that have agreed to vote in favor of the transaction, a majority of CHAC’s
outstanding shares have agreed to vote in favor of the Proposals, meaning that no additional shares would be required to be voted
in favor of the Proposals in order for the Proposals to be approved at the meeting.
Please see “Special
Meeting of CHAC Stockholders —Record Date; Who is Entitled to Vote” for further information.
Q: What
is the quorum requirement for the special meeting of stockholders?
A: Stockholders
representing a majority of the common stock issued and outstanding as of the Record Date and entitled to vote at the special meeting
must be present in person or represented by proxy in order to hold the special meeting and conduct business. This is called a
quorum. CHAC Shares will be counted for purposes of determining whether there is a quorum if the stockholder (i) is present and
entitled to vote at the meeting, or (ii) has properly submitted a proxy card. In the absence of a quorum, stockholders representing
a majority of the votes present in person or represented by proxy at such meeting, may adjourn the meeting until a quorum is present.
Q: What
vote is required to approve the Proposals?
A: Approval of the Business Combination Proposal, the
Equity Plan Adoption Proposal, the NYSE Proposal, and the Business Combination Adjournment Proposal will each require the affirmative
vote of the holders of a majority of the issued and outstanding common stock of CHAC present and entitled to vote at the special
meeting. Approval of each of the Amendment Proposals will require the approval of the holders of a majority of the CHAC Shares
entitled to vote at the special meeting. Attending the special meeting either in person or by proxy and abstaining from voting
will have the same effect as voting against all the proposals and, assuming a quorum is present, broker non-votes will have no
effect on the Proposals, except that a broker non-vote will have the same effect as voting against each of the Amendment Proposals.
Q: How
will the initial stockholders vote?
A: CHAC’s Sponsor and other initial stockholders,
who as of the Record Date owned [1,750,000] Founder Shares, or approximately [20]% of the outstanding CHAC Shares, have agreed
to vote their respective shares of common stock acquired by them prior to the Initial Public Offering in favor of each of the
Proposals, including the Business Combination Proposal. CHAC’s Sponsor and other initial stockholders have also agreed that
they will vote any shares they purchase or have purchased in the open market in or after the Initial Public Offering in favor
of each of the Proposals.
Q: Am
I required to vote against the Business Combination Proposal in order to have my common stock redeemed?
A: No.
You are not required to vote against the Business Combination Proposal in order to have the right to demand that CHAC redeem your
common stock for cash equal to your pro rata share of the aggregate amount then on deposit in the trust account (before payment
of deferred underwriting commissions and including interest earned on their pro rata portion of the trust account, net of taxes
payable). These rights to demand redemption of CHAC Shares for cash are sometimes referred to herein as redemption rights. If
the Business Combination is not completed, then holders of CHAC Shares electing to exercise their redemption rights will not be
entitled to receive such payments.
Q: Do
I have redemption rights?
A: Yes. However, a redemption payment will
only be made in the event that the proposed Business Combination is consummated. If the proposed Business Combination is not completed
for any reason, then public stockholders who exercised their redemption rights would not be entitled to receive the redemption
payment. You may not elect to redeem your shares prior to the completion of the Business Combination.
The units (the “CHAC Units”) that
were issued in CHAC’s Initial Public Offering, each consist of one share of common stock of CHAC, par value $0.0001 per
share (the “CHAC Shares”), and one redeemable warrant to purchase one-half of a CHAC Share, with every two redeemable
warrants entitling the holder thereof to purchase one CHAC Share for $11.50 per full share (the “CHAC Warrants”).
Assuming the Proposed Business Combination closes, CHAC stockholders (except for the Sponsor or CHAC’s officers and directors)
will be entitled to redeem their CHAC Shares for a pro rata share of the trust account (currently anticipated to be no less than
approximately $10.16 per share for stockholders) net of taxes payable.
Q: How do I exercise my redemption rights?
A: If you are a public stockholder and you seek to have
your shares redeemed, you must (i) demand, no later than 5:00 p.m., Eastern time on October 21, 2019 (two (2) business days
before the special meeting), that CHAC redeem your shares into cash; and (ii) submit your request in writing to CHAC’s transfer
agent, at the address listed at the end of this section and deliver your shares to CHAC’s transfer agent physically or electronically
using The Depository Trust Company’s (“DTC”) DWAC (Deposit/Withdrawal at Custodian) System at least two (2)
business days before the special meeting.
Any corrected or changed written demand of redemption rights
must be received by CHAC’s transfer agent two (2) business days before the special meeting. No demand for redemption will
be honored unless the holder’s shares have been delivered (either physically or electronically) to the transfer agent at
least two (2) business days before the special meeting.
Public stockholders may seek to have their shares redeemed
regardless of whether they vote for or against the Business Combination and whether or not they are holders of CHAC Shares as
of the Record Date. Any public stockholder who holds shares of CHAC Shares on or before October 21, 2019 (two (2) business days
before the special meeting) will have the right to demand that his, her or its shares be redeemed for a pro rata share of the
aggregate amount then on deposit in the trust account, less any taxes then due but not yet paid, at the consummation of the Business
Combination).
Any
request for redemption, once made, may be withdrawn at any time up to the date of the special meeting of CHAC stockholders. The
actual per share redemption price will be equal to the aggregate amount then on deposit in the trust account (before payment of
deferred underwriting commissions and including interest earned on their pro rata portion of the trust account, net of taxes payable),
divided by the number of shares of common stock sold in the Initial Public Offering. Please see the section entitled “Special
Meeting of CHAC Stockholders—Redemption Rights” for more information on the procedures to be followed if you wish
to redeem your CHAC Shares for cash.
Q: How
can I vote?
A: If you were a holder of record CHAC Shares on the
Record Date for the special meeting of CHAC stockholders, you may vote with respect to the applicable Proposals in person at the
special meeting of CHAC stockholders, or by submitting a proxy by mail so that it is received prior to 9:00 a.m. on October 23,
2019, in accordance with the instructions provided to you under “Special Meeting of CHAC Stockholders.” If
you hold your shares in “street name,” which means your shares are held of record by a broker, bank or other nominee,
your broker or bank or other nominee may provide voting instructions (including any telephone or Internet voting instructions).
You should contact your bank, broker or other nominee in advance of the special meeting to ensure that votes related to the shares
you beneficially own will be properly counted. In this regard, you must provide your bank, broker or other nominee with instructions
on how to vote your shares or, if you wish to attend the special meeting of CHAC stockholders and vote in person, obtain a proxy
from your bank, broker or other nominee.
Q: If
my shares are held in “street name” by my bank, broker or other nominee, will they automatically vote my shares for
me?
A: No. Under the rules of various national
securities exchanges, your bank, broker or other nominee cannot vote your shares with respect to non-discretionary matters unless
you provide instructions on how to vote in accordance with the information and procedures provided to you by your bank, broker
or other nominee. CHAC believes the Proposals other than the adjournment proposal are non-discretionary and, therefore, your bank,
broker or other nominee cannot vote your shares without your instruction. If you do not provide instructions with your proxy,
your bank, broker or other nominee may submit a proxy card expressly indicating that it is NOT voting your shares; this indication
that a bank, broker or other nominee is not voting your shares is referred to as a “broker non-vote.” Broker non-votes
will not be considered present for the purposes of establishing a quorum and will have no effect on the Proposals, except that
a broker non-vote will have the same effect as voting against each of the Amendment Proposals. You should instruct your broker
to vote your CHAC Shares in accordance with directions you provide.
Q: What
if I abstain from voting or fail to instruct my bank, broker or other nominee on how to vote my shares?
A: CHAC
will count a properly executed proxy marked “ABSTAIN” with respect to a particular Proposal as present for the purposes
of determining whether a quorum is present at the special meeting of CHAC stockholders. For purposes of approval, an abstention
on any Proposals will have the same effect as a vote “AGAINST” such Proposal. Additionally, failure to elect to exercise
your redemption rights will preclude you from having your common stock redeemed for cash. In order to exercise your redemption
rights, you must make an election on the applicable proxy card to redeem such CHAC Shares or submit a request in writing to CHAC’s
transfer agent at the address listed on page 214, and deliver your shares to CHAC’s transfer agent physically or electronically
through DTC prior to the special meeting of CHAC stockholders.
Q: Can
I change my vote after I have mailed my proxy card?
A: Yes. You may change your vote at any time before your
proxy is voted at the special meeting. You may revoke your proxy by executing and returning a proxy card dated later than the
previous one, or by attending the special meeting in person and casting your vote by ballot or by submitting a written revocation
stating that you would like to revoke your proxy that we receive prior to the special meeting. If you hold your shares through
a bank, broker or other nominee, you should follow the instructions of your bank, broker or other nominee regarding the revocation
of proxies. If you are a record holder, you should send any notice of revocation or your completed new proxy card, as the case
may be, to:
Chardan
Healthcare Acquisition Corp.
17 State St., Floor 21
New
York, NY 10004
Attn:
Jonas Grossman
Telephone:
(646) 465-9000
Q: Should
I send in my share certificates now?
A: CHAC stockholders who intend to have
their common stock redeemed should send their certificates to CHAC’s transfer agent two (2) business days before the special
meeting. Please see “Special Meeting of CHAC Stockholders — Redemption Rights” for the procedures to
be followed if you wish to redeem your common stock for cash.
Q: When
is the Business Combination expected to occur?
A: Assuming the requisite stockholder approvals are received
and all other conditions to closing satisfied, CHAC expects that the Business Combination will occur no later than October 31,
2019.
Q: May
I seek statutory appraisal rights or dissenter rights with respect to my shares?
A: No. Appraisal rights are not available to holders of CHAC
Shares in connection with the proposed Business Combination. For additional information, see the sections entitled “Special
Meeting of CHAC Stockholders—Appraisal Rights.”
Q: What
happens if the Business Combination is not consummated?
A: If CHAC does not consummate a business combination
by the date that is 24 months from the closing of the Initial Public Offering, or December 18, 2020, then pursuant to Article
Sixth of its Amended and Restated Certificate of Incorporation, CHAC’s officers must take all actions necessary in accordance
with the Delaware General Corporation Law (referred to herein as the “DGCL”) to dissolve and liquidate CHAC as soon
as reasonably practicable. Following dissolution, CHAC will no longer exist as a company. In any liquidation, the funds held in
the trust account, plus any interest earned thereon (net of taxes payable), together with any remaining out-of-trust net assets
will be distributed pro-rata to holders of CHAC Shares who acquired such common stock in CHAC’s Initial Public Offering
or in the aftermarket. The estimated consideration that each CHAC share would be paid at liquidation would be approximately $[●]
per share for stockholders based on amounts on deposit in the trust account as of [September 17], 2019. The closing price of CHAC’s
common stock on the NYSE American Stock Exchange as of [September 17], 2019 was $[●]. CHAC’s Sponsor and other initial
stockholders waived the right to any liquidation distribution with respect to any CHAC Shares held by them.
Q: What
happens to the funds deposited in the trust account following the Business Combination?
A: Following the closing of the Business
Combination, funds in the trust account will be released to CHAC. Holders of CHAC Shares exercising redemption rights will receive
their per share redemption price. The balance of the funds will be utilized to fund the Business Combination. As of June 30, 2019,
there was $70,881,151 in CHAC’s trust account. Approximately $[●] per outstanding share issued in CHAC’s
Initial Public Offering will be paid to the public investors. Any funds remaining in the trust account after such uses will be
used for future working capital and other corporate purposes of the combined entity.
Q: Who will solicit the proxies and pay the cost
of soliciting proxies for the Special Meeting?
A: CHAC will pay the cost of soliciting proxies for the
Special Meeting. CHAC has engaged Morrow Sodali to assist in the olicitation of proxies for the Special Meeting. CHAC has agreed
to pay Morrow Sodali a fee of $20,000, plus disbursements, and will reimburse Morrow Sodali for its reasonable out-of-pocket expenses
and indemnify Morrow Sodali and its affiliates against certain claims, liabilities, losses, damages and expenses. CHAC will also
reimburse banks, brokers and other custodians, nominees and fiduciaries representing beneficial owners of shares of CHAC Shares
for their expenses in forwarding soliciting materials to beneficial owners of the CHAC Shares 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.
DELIVERY
OF DOCUMENTS TO CHAC’s stockholders
Pursuant
to the rules of the Securities and Exchange Commission (“SEC”), CHAC and services that it employs to deliver communications
to its stockholders are permitted to deliver to two or more stockholders sharing the same address a single copy of the proxy statement,
unless CHAC has received contrary instructions from one or more of such stockholders. Upon written or oral request, CHAC will
deliver a separate copy of the proxy statement to any stockholder at a shared address to which a single copy of the proxy statement
was delivered and who wishes to receive separate copies in the future. Stockholders receiving multiple copies of the proxy statement
may likewise request that CHAC deliver single copies of the proxy statement in the future. Stockholders may notify CHAC of their
requests by contacting CHAC as follows:
Chardan
Healthcare Acquisition Corp.
17 State St., Floor 21
New
York, NY 10004
Attn: Jonas Grossman
Telephone: (646) 465-9000
SUMMARY
OF THE PROXY STATEMENT
This
summary highlights selected information from this proxy statement but may not contain all of the information that may be important
to you. Accordingly, we encourage you to read carefully this entire proxy statement, including the Merger Agreement attached as
Annex A. Please read these documents carefully as they are the legal documents that govern the Business Combination and
your rights in the Business Combination.
Unless
otherwise specified, all share calculations assume no exercise of the redemption rights by CHAC’s stockholders.
The
Parties to the Business Combination
Chardan
Healthcare Acquisition Corp.
CHAC was incorporated as
a blank check company on November 1, 2017, under the laws of the State of Delaware, for the purpose of entering into a merger,
share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or
more businesses or entities, which we refer to as a “target business.” CHAC’s efforts to identify a prospective
target business were not limited to any particular industry or geographic location. CHAC’s mailing address is 17 State Street,
21st Floor, New York, New York, 10004.
On December 18, 2018, CHAC
consummated its Initial Public Offering of 7,000,000 CHAC Units. The CHAC Units sold in the Initial Public Offering were sold
at an offering price of $10.00 per CHAC Unit, generating total gross proceeds of $70,000,000. The CHAC Units each consist of one
CHAC Share and one redeemable warrant to purchase one-half of a CHAC Share, with every two redeemable warrants entitling the holder
to purchase one CHAC Share for $11.50 per full share. We granted the underwriters a 45-day option to purchase up to 1,050,000
additional CHAC Units to cover over-allotments at the Initial Public Offering price, less the underwriting discounts and commissions.
The overallotment option expired unexercised on February 4, 2019.
Simultaneous with the consummation of
the Initial Public Offering, we consummated the private placement of an aggregate of 2,900,000 Private CHAC Warrants, each exercisable
to purchase one CHAC Share for $11.50 per share, to Mountain Wood, LLC, an affiliate of the Sponsor, at a price of $0.40 per Private
CHAC Warrant, generating total proceeds of $1,160,000. The issuance was made pursuant to the exemption from registration contained
in Section 4(a)(2) of the Securities Act. These Private CHAC Warrants are identical to the warrants underlying the CHAC Units
sold in the Initial Public Offering, except that the Private CHAC Warrants are not transferable, assignable or salable until after
the completion of a business combination, subject to certain limited exceptions. Additionally, the Private CHAC Warrants are exercisable
on a cashless basis and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees.
After deducting the underwriting discounts,
offering expenses, and commissions from the Initial Public Offering and the sale of the Private CHAC Warrants, a total of $70,000,000
was deposited into a trust account established for the benefit of CHAC’s public stockholders, and the remaining proceeds
became available to be used to provide for business, legal and accounting due diligence on prospective business combinations and
continuing general and administrative expenses.
As of June 30, 2019, we have approximately
$696,830 of unused net proceeds that were not deposited into the trust fund to pay future general and administrative expenses.
The net proceeds deposited into the trust fund remain on deposit in the trust fund earning interest. As of June 30, 2019 there
was $70,881,151 held in the trust fund (including $881,150 of accrued interest which we can withdraw to pay taxes).
Our Sponsor paid
a total of $500,000 in underwriting discounts and commissions and received a non-interest bearing promissory note in exchange
for the payment of such amount, which was payable at the closing of a Business Combination. The promissory note was repaid in
July 2019 from the unused net proceeds that were not deposited into the trust fund.
In August 2019,
the Sponsor committed to provide us an aggregate of $500,000 in loans to finance transaction costs in connection with a Business
Combination. To the extent advanced, the loans will be evidenced by a promissory note, will be non-interest bearing, unsecured
and will only be repaid upon the completion of a Business Combination.
The CHAC Units, CHAC Shares and CHAC Warrants
are each quoted on the NYSE American Stock Exchange, under the symbols “CHACU,” “CHAC” and “CHACW”
respectively. Each of CHAC Units consists of one CHAC Share and one CHAC Warrant to purchase one half of a CHAC Share. CHAC Units
commenced trading on the NYSE American Stock Exchange on December 14, 2018. CHAC Shares and CHAC Warrants commenced trading on
the NYSE American Stock Exchange on March 13, 2019.
Merger
Sub
CHAC Merger Sub Ltd. is an Israeli company
and wholly owned subsidiary of CHAC, registered by CHAC on July 1, 2019 to consummate the Business Combination. The Merger Sub
will merge with and into BiomX with BiomX continuing as the surviving entity.
BiomX
Ltd.
BiomX Ltd. (“BiomX”) is
an Israeli company formed on March 3, 2015. BiomX is a preclinical stage microbiome product discovery company developing products
using both natural and engineered phage technologies designed to target and destroy bacteria that affect the appearance of skin,
as well as harmful bacteria in chronic diseases, such as inflammatory bowel disease, liver disease and cancer. Bacteriophage or
phage are viruses that target bacteria and are considered inert to mammalian cells. By developing proprietary combinations of
naturally occurring phage and by creating novel phage using synthetic biology, BiomX develops phage-based therapies intended to
address large-market and orphan diseases. For more information on BiomX, please see the sections entitled “BiomX Ltd.’s
Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of
BiomX Ltd.,” “Directors, Executive Officers, Executive Compensation and Corporate Governance—Directors
and Executive Officers After the Business Combination,” and “Directors, Executive Officers, Executive Compensation
and Corporate Governance—Compensation of Officers and Directors of BiomX.”
BiomX’s
mailing address is 7 Pinhas Sapir St., Floor 2, Ness Ziona 7414002, Israel.
The
Merger Agreement
On July 16, 2019, CHAC, Merger Sub,
and BiomX entered into the Merger Agreement pursuant to which, subject to the satisfaction or waiver of certain conditions set
forth therein, Merger Sub will merge with and into BiomX, with BiomX surviving the merger in accordance with the Israeli Companies
Law, 5759-1999 (the “Israeli Companies Law”) as a wholly owned direct subsidiary of CHAC. For more information
about the Business Combination, please see the section entitled “The Business Combination Proposal.” A copy
of the Merger Agreement is attached to this proxy statement as Annex A.
Consideration
to BiomX Security Holders
Upon the closing of the transactions
contemplated in the Merger Agreement (the “Closing”), Merger Sub will merge with and into BiomX, resulting in BiomX
becoming a wholly owned subsidiary of CHAC. The securityholders of BiomX that hold shares of BiomX or vested options or warrants
exercisable for shares of BiomX will receive an aggregate of 16,625,000 CHAC Shares or vested options or warrants to purchase
CHAC Shares, respectively, subject to reduction for indemnification claims as described in the section entitled “The
Merger Agreement.” Additional CHAC Shares will be reserved for issuance in respect of options to purchase shares of
BiomX that are issued, outstanding and unvested as of immediately prior to the Closing.
For more information about the consideration
to the BiomX securityholders, please see the section entitled “The Business Combination Proposal.”
Management
and Board of Directors Following the Business Combination
Effective as of the closing date, the
Board of Directors of CHAC will consist of seven members, two of which will be designated by the Sponsor and five of which will
be designated by BiomX. The members designated by BiomX will include Jonathan Solomon, Yaron Breski, Erez Chimovitz, Robbie Woodman
and an additional director, whose identity is yet to be determined, and the members designated by CHAC will include Gbola Amusa
and Jonas Grossman. Jonathan Solomon will be the Chief Executive Officer of CHAC after the consummation of the Business Combination.
See “Directors and Executive Officers after the Business Combination” for additional information.
Other
Agreements Relating to the Business Combination
Registration
Rights Agreement
At the closing of the Business Combination,
CHAC will enter into a Registration Rights Agreement with the BiomX security holders, substantially in the form attached as Annex
B to this proxy statement, which provides certain demand and piggy-back registration rights to the BiomX security holders.
The demand registration rights may not be exercised until six months after the closing of the Business Combination. Subject to
certain exceptions, the Company will bear all Registration Expenses (as defined in the Registration Rights Agreement).
Voting Agreement
At the closing of the Business Combination,
CHAC will enter into a Voting Agreement with certain of the CHAC founders and BiomX security holders, substantially in the form
attached as Annex C to this proxy statement, which provides that the parties to the agreement agree to vote:
|
●
|
in
favor of two members of the CHAC Board of Directors to be selected by the Sponsor;
|
|
●
|
in
favor of five members of the CHAC Board of Directors to be selected by Shareholder’s Representative Services LLC, the
representative of the BiomX shareholders; and
|
|
●
|
in
favor of maintaining the size of the CHAC Board of Directors at seven.
|
Shareholder
Agreements
In
addition:
|
1.
|
The Sponsor, entered into an agreement with BiomX pursuant to which if the Aggregate Investment Amount (as defined in the Merger Agreement), is less than $70,000,000, the Sponsor has agreed to forfeit a number of whole CHAC Shares equal to: (a) 500,000 CHAC Shares; 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 CHAC Shares.
|
|
2.
|
Chardan Securities,
LLC entered into an agreement with BiomX pursuant to which it agreed to purchase up to $2.5 million of CHAC Shares, 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 of the Business Combination in the event that the Aggregate Investment Amount would be less
than $50 million but greater than $47,499,999.
|
|
3.
|
CHAC entered into
voting agreements with holders of 1,000,000 CHAC Shares pursuant to which such stockholders agreed to vote in favor of the
transactions contemplated by the Merger Agreement and to not redeem or sell their shares.
|
|
4.
|
CHAC and certain
current CHAC public stockholders 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 stockholders
an amount equal to the difference between the redemption price per share at the Closing minus $10.00 per share. In addition,
CHAC also agreed to issue such BiomX shareholders the following number of additional shares in the aggregate subject to the
achievement of the conditions specified below:
|
|
a.
|
Following the Closing,
if the daily volume weighted average price of a CHAC Share in any 20 trading days within a 30 trading day period prior to
January 1, 2022 is greater than or equal to $16.50 per share, then CHAC shall issue 2,000,000 CHAC Shares.
|
|
b.
|
Following the Closing,
if the daily volume weighted average price of a CHAC Share in any 20 trading days within a 30 trading day period prior to
January 1, 2024 is greater than or equal to $22.75 per share, then CHAC shall issue 2,000,000 CHAC Shares.
|
|
c.
|
Following the Closing,
if the daily volume weighted average price of a CHAC Share in any 20 trading days within a 30 trading day period prior to
January 1, 2026 is greater than or equal to $29.00 per share, then CHAC shall issue 2,000,000 CHAC Shares.
|
|
5.
|
CHAC entered into a letter agreement with certain BiomX shareholders to sell additional CHAC Shares to
them in the event that certain events occur.
|
|
6.
|
CHAC entered into agreements with investors that agreed
to purchase up to 810,000 CHAC Shares at CHAC’s request and not to redeem such CHAC Shares in connection with the
Closing.
|
|
7.
|
Certain third parties
entered into agreements to purchase 1,234,908 CHAC Shares from certain of its current public stockholders at the Closing.
The existing stockholders agreed to vote in favor of the transactions contemplated by the Merger Agreement and not to redeem
or sell their CHAC Shares.
|
|
8.
|
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 BiomX shareholders.
|
Except as described above, no additional consideration was
paid by CHAC in connection with the agreements described above.
Impact
of the Business Combination on the Company’s Public Float
Assuming there are no redemptions of our
public shares, and giving effect to the purchase and sale agreements referred to above, it is anticipated that upon completion
of the Business Combination, the ownership of the outstanding shares of the post-combination company will be as follows:
|
●
|
CHAC
public stockholders will own approximately 20%, excluding shares beneficially owned by
our Sponsor,
|
|
●
|
Our
Sponsor will own approximately 7%, and
|
|
●
|
BiomX
shareholders will own approximately 73%.
|
The ownership percentages with respect
to the post-Business Combination company set forth above do not take into account (a) CHAC Warrants and warrants underlying CHAC
Units that will remain outstanding immediately following the Business Combination; (b) stock options and warrants that will be
issued to holders of BiomX stock options and warrants, outstanding and unexercised as of immediately prior to the effective time
of the Business Combination; or (c) the issuance of any shares upon completion of the Business Combination, but does include Founder
Shares, which will be converted into CHAC Shares at the Closing on a one-for-one basis. If the actual facts are different than
these assumptions, the percentage ownership retained by our public stockholders following the Business Combination will be different.
The CHAC Warrants and warrants underlying CHAC Units will become exercisable 30 days after the completion of the Business Combination
and will expire five years after the completion of the Business Combination or earlier upon redemption or liquidation.
For more information, please see the section
entitled “Unaudited Pro Forma Condensed Combined Financial Information.”
The Proposals
At the special meeting, stockholders of
the Company will be asked to vote:
● To
approve the Merger Agreement, dated as of July 16, 2019 (the “Merger Agreement”) by and among CHAC, BiomX Ltd. (“BiomX”)
and CHAC Merger Sub Ltd. (the “Merger Sub”), and the transactions contemplated thereby (collectively referred to as
the “Business Combination”). This proposal is referred to as the “Business Combination Proposal” or “Proposal
No. 1.”
● To
approve the amendment of the Amended and Restated Certificate of Incorporation of CHAC to increase the number of authorized shares
of common stock from 30,000,000 to 60,000,000. This proposal is referred to as the “Share Increase Proposal” or “Proposal
No. 2.”
● To
approve the amendment of the Amended and Restated Certificate of Incorporation to classify the Board of Directors into three classes.
This proposal is referred to as the “Classified Board Proposal” or “Proposal No. 3,” and together with
the Share Increase Proposal, they are referred to as the “Amendment Proposals.”
● To
approve the Chardan Healthcare Acquisition Corp. 2019 Omnibus Long-Term Incentive Plan. This proposal is referred to as the “Equity
Plan Adoption Proposal” or “Proposal No. 4.”
● To
approve the issuance of more than 20% of the issued and outstanding common stock of CHAC pursuant to the terms of the Merger Agreement,
as required by NYSE American Listed Company Guide Sections 712 and 713. This proposal is referred to as the “NYSE Proposal”
or “Proposal No. 5.”
● To
approve the adjournment of the special meeting, if necessary or advisable, in the event CHAC does not receive the requisite stockholder
vote to approve the Business Combination. This proposal is called the “Business Combination Adjournment Proposal”
or “Proposal No. 6.”
Please see the sections entitled “The
Business Combination Proposal,” “The Share Increase Proposal,” “The Classified Board Proposal,”
“The Equity Plan Adoption Proposal,” “The NYSE Proposal” and “The Business Combination
Adjournment Proposal”. for more information on Proposals 1 through 6.
Voting
Securities, Record Date
As of September 17, 2019, there were
8,750,000 shares of common stock of CHAC issued and outstanding. Only CHAC stockholders who hold common stock of record as of
the close of business on September 17, 2019 are entitled to vote at the special meeting of stockholders or any adjournment of
the special meeting. Approval of the Business Combination Proposal, the Equity Plan Adoption Proposal, the NYSE Proposal, and
the Business Combination Adjournment Proposal will each require the affirmative vote of the holders of a majority of the issued
and outstanding common stock of CHAC present and entitled to vote at the special meeting. Approval of each of the Amendment Proposals
will require the approval of the holders of a majority of the CHAC Shares entitled to vote at the special meeting. Attending the
special meeting either in person or by proxy and abstaining from voting will have the same effect as voting against all the proposals
and, assuming a quorum is present, broker non-votes will have no effect on the Proposals, except that a broker non-vote will have
the same effect as voting against each of the Amendment Proposals.
As of September 17, 2019, CHAC’s
Sponsor and other initial stockholders owned, either directly or beneficially, and were entitled to vote 1,750,000 CHAC Shares,
or approximately 20% of CHAC’s outstanding common stock. With respect to the Business Combination, CHAC’s Sponsor
and other initial stockholders have agreed to vote their respective CHAC Shares in favor of the Business Combination Proposal
and related Proposals.
Anticipated
Accounting Treatment
The Business Combination will be treated by CHAC as a “reverse merger” in accordance with
accounting principles generally accepted in the United States of America (“GAAP”). For accounting purposes, BiomX is
considered to be acquiring CHAC in this transaction. Therefore, for accounting purposes, the Business Combination will be treated
as the equivalent of a capital transaction in which BiomX is issuing stock for the net assets of CHAC. The net assets of CHAC will
be stated at historical cost, with no goodwill or other intangible assets recorded. The post-acquisition financial statements of
CHAC will show the consolidated balances and transactions of CHAC and BiomX as well as comparative financial information of BiomX
(the acquirer for accounting purposes).
Regulatory
Approvals
The Business Combination and the other transactions
contemplated by the Merger Agreement are not subject to any additional federal or state regulatory requirements or approvals, including
the Hart-Scott Rodino Antitrust Improvements Act of 1976, except for a filing with the Israeli Registrar of Companies necessary
to effectuate the transactions contemplated by the Merger Agreement.
Appraisal
Rights
Holders
of CHAC Shares are not entitled to appraisal rights under Delaware law.
Stockholder
Interests of Certain Persons in the Business Combination
When
you consider the recommendation of CHAC’s Board of Directors in favor of adoption of the Business Combination Proposal and
other Proposals, you should keep in mind that CHAC’s directors and officers have interests in the Business Combination that
are different from, or in addition to, your interests as a stockholder, including:
|
●
|
If
the proposed Business Combination is not completed by the date that is 24 months from
the closing of the Initial Public Offering, or December 18, 2020, CHAC will be required
to liquidate. In such event, the 1,750,000 Founder Shares held by CHAC’s Sponsor
and other initial stockholders, which were acquired prior to the Initial Public Offering
for an aggregate purchase price of $25,000 will be worthless. Such common stock had an
aggregate market value of approximately $[●] based on the closing price of CHAC’s
common stock of $[●] on the NYSE American Stock Exchange as of [September 17],
2019.
|
|
●
|
If
the proposed Business Combination is not completed by the date that is 24 months from
the closing of the Initial Public Offering, or December 18, 2020, the 2,900,000 Private
CHAC Warrants purchased by Mountain Wood, LLC, an affiliate of our Sponsor, for a total
purchase price of $1,160,000, will be worthless. Such Private CHAC Warrants had an aggregate
market value of approximately [$●] based on the closing price of CHAC’s warrants
of $[●] on the NYSE American Stock Exchange as of [September 17], 2019.
|
|
●
|
The
exercise of CHAC’s directors’ and officers’ discretion in agreeing
to changes or waivers in the terms of the transaction may result in a conflict of interest
when determining whether such changes or waivers are appropriate and in CHAC stockholders’
best interest.
|
|
●
|
If
the Business Combination is completed, CHAC will designate two members to the Board of
Directors of the Merger Sub, who are both current officers and directors of CHAC.
|
Recommendations
of the Boards of Directors to Stockholders
After careful consideration
of the terms and conditions of the Merger Agreement, the Board of Directors of CHAC has determined that the Business Combination
and the transactions contemplated thereby are fair to and in the best interests of CHAC and its stockholders. In reaching its
decision with respect to the Business Combination and the transactions contemplated thereby, the CHAC Board of Directors reviewed
various industry and financial data and the due diligence and evaluation materials provided by BiomX including forward looking
summarized expense projections as well as estimates of disease prevalence. CHAC’s assumptions for forward-looking revenue
were derived from internal research and proprietary modeling. The CHAC Board of Directors did not obtain a fairness opinion on
which to base its assessment. CHAC’s Board of Directors recommends that CHAC stockholders vote:
|
●
|
FOR
the Business Combination Proposal;
|
|
●
|
FOR
the Share Increase Proposal;
|
|
●
|
FOR
the Classified Board Proposal;
|
|
●
|
FOR
the Equity Plan Adoption Proposal;
|
|
●
|
FOR
the NYSE Proposal; and
|
|
●
|
FOR
the Business Combination Adjournment Proposal.
|
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” beginning on page 15 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 CHAC and BiomX to complete the Business
Combination, and (ii) the business, cash flows, financial condition and results of operations of the company following consummation
of the Business Combination.
BIOMX
LTD. SUMMARY FINANCIAL INFORMATION
The data below as of December 31,
2018, and 2017 and for the three years in the period ended December 31, 2018 has been derived from BiomX’s audited consolidated
financial statements for such years, which are included in this proxy statement. The data below as of June 30, 2019 and
for the three and six months ended June 30, 2019 and 2018, has been derived from BiomX’s unaudited interim consolidated
financial statements for such periods, which are included in this proxy statement. BiomX has prepared the unaudited interim consolidated
financial statements on the same basis as the audited consolidated financial statements and has included, in its opinion, all
adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation of the financial informationin
accordance with GAAP, set forth in those statements. Historical results are not necessarily indicative of the results to be expected
for future periods.
The information presented below
should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations
of BiomX Ltd.” and BiomX’s audited and unaudited financial statements and notes thereto included elsewhere in this
proxy statement.
|
|
Three months ended
June 30,
|
|
|
Six months ended
June
30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development (“R&D”) expenses,
net
|
|
|
2,864
|
|
|
|
1,655
|
|
|
|
5,600
|
|
|
|
3,643
|
|
General and administrative expenses
|
|
|
1,203
|
|
|
|
788
|
|
|
|
2,190
|
|
|
|
1,435
|
|
|
|
|
4,067
|
|
|
|
2,443
|
|
|
|
7,
790
|
|
|
|
5,078
|
|
Operating Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expenses (income), net
|
|
|
(289
|
)
|
|
|
229
|
|
|
|
(787
|
)
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
3,778
|
|
|
|
2,672
|
|
|
|
7,003
|
|
|
|
5,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per Ordinary Shares and Ordinary A Shares
|
|
|
6.00
|
|
|
|
3.90
|
|
|
|
11.32
|
|
|
|
7.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of Ordinary Shares and
Ordinary A Shares outstanding, basic and diluted
|
|
|
829,361
|
|
|
|
829,361
|
|
|
|
829,361
|
|
|
|
827,228
|
|
|
|
Year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
USD In thousands
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses, net
|
|
|
9,135
|
|
|
|
4,176
|
|
|
|
1,149
|
|
General and administrative expenses
|
|
|
3,360
|
|
|
|
2,536
|
|
|
|
620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
12,495
|
|
|
|
6,712
|
|
|
|
1,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revaluation of convertible note
|
|
|
-
|
|
|
|
-
|
|
|
|
133
|
|
Financial expenses, net
|
|
|
225
|
|
|
|
(279
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
12,720
|
|
|
|
6,433
|
|
|
|
1,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per Ordinary Shares and Ordinary A Shares(1)
|
|
|
18.41
|
|
|
|
9.08
|
|
|
|
2.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of Ordinary Shares and Ordinary A Shares outstanding, basic and diluted
|
|
|
828,295
|
|
|
|
813,902
|
|
|
|
812,000
|
|
|
(1)
|
See Note 14 to BiomX’s audited consolidated financial
statements appearing at the end of this proxy statement for further details on the calculation of basic and diluted net loss per
share.
|
Consolidated Balance Sheet Data, USD In thousands:
|
|
As
of June 30,
|
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Cash and cash equivalents
|
|
|
16,145
|
|
|
|
8,604
|
|
|
|
6,898
|
|
Short term deposits
|
|
|
18,617
|
|
|
|
31,055
|
|
|
|
1,154
|
|
Working capital(1)
|
|
|
32,923
|
|
|
|
38,249
|
|
|
|
7,015
|
|
Total assets
|
|
|
41,730
|
|
|
|
45,331
|
|
|
|
13,990
|
|
Current liabilities
|
|
|
2,204
|
|
|
|
1,639
|
|
|
|
1,459
|
|
Accumulated deficit
|
|
|
(28,612
|
)
|
|
|
(21,609
|
)
|
|
|
(8,889
|
)
|
Total Shareholders’ equity
|
|
|
38,231
|
|
|
|
42,803
|
|
|
|
11,530
|
|
|
(1)
|
Working capital is defined as current assets less current
liabilities.
|
TRADING
MARKET AND DIVIDENDS
The CHAC Units, CHAC Shares and CHAC
Warrants are each quoted on the NYSE American Stock Exchange, under the symbols “CHACU,” “CHAC” and “CHACW,”
respectively. Each of the CHAC Units consists of one CHAC Share and CHAC Warrant to purchase one-half of a CHAC Share. The CHAC
Units commenced trading on December 14, 2018. The CHAC Shares and CHAC Warrants commenced trading on March 13, 2019.
CHAC has not paid any cash dividends
on its CHAC Shares to date and does not intend to pay cash dividends prior to the completion of a Business Combination. The payment
of cash dividends in the future will depend upon CHAC’s revenues and earnings, if any, capital requirements and general
financial condition subsequent to completion of the Business Combination. The payment of any dividends subsequent to the Business
Combination will be within the discretion of its then Board of Directors. It is the present intention of CHAC’s Board of
Directors to retain all earnings, if any, for use in its business operations and, accordingly, CHAC’s Board of Directors
does not anticipate declaring any dividends in the foreseeable future.
BiomX’s
securities are not publicly traded.
RISK
FACTORS
You
should consider carefully the following risk factors, as well as the other information set forth in this proxy statement, before
making a decision on the Business Combination.
Risks
Related to BiomX’s Business, Technology and Industry
BiomX
is a development-stage company with limited operating history and has incurred losses since its inception. BiomX anticipates that
it will continue to incur increasing and significant losses for the foreseeable future.
BiomX
is a development-stage biopharmaceutical company with limited operating history. BiomX has incurred losses in each year since
its inception in 2015. As of June 30, 2019, BiomX’s accumulated deficit was $28.6 million, and BiomX expects to incur increasingly
significant losses for the foreseeable future. Preclinical development and clinical trials and activities are costly. BiomX has
devoted, and will continue to devote for the foreseeable future, substantially all of its resources to research and development
and clinical trials for its product candidates. BiomX does not expect to generate any revenue from the commercial sales of its
product candidates in the near term. For the six months ended June 30, 2019 and 2018, BiomX had losses from operations of $7.8
million and $5.1 million, respectively. For the years ended December 31, 2018 and 2017, BiomX had losses from operations of $12.5
million and $6.7 million, respectively. BiomX anticipates that its expenses will increase substantially if and as it:
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continues
to develop and conduct clinical trials with respect to its lead product candidate, BX001, and other product candidates in
its pipeline;
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initiates
and continues research, preclinical and clinical development efforts for any future product candidates;
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seeks
to discover and develop additional product candidates and further expand its clinical product pipeline;
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seeks
marketing and regulatory approvals for any product candidates that successfully complete clinical trials;
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requires
the manufacture of larger quantities of product candidates for clinical development and, potentially, commercialization;
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maintains,
expands and protects its intellectual property portfolio;
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expands
its research and development infrastructure, including hiring and retaining additional personnel, such as clinical, quality
control and scientific personnel;
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establishes
sales, marketing, distribution and other commercial infrastructure in the future to commercialize products for which it obtains
marketing approval, if any; and
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adds
operational, financial and management information systems and personnel, including personnel to support its product development
and commercialization and help it comply with its obligations as a subsidiary of a public company.
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BiomX
will need to raise additional capital to support its operations.
At June 30, 2019, BiomX had cash, cash
equivalents and short-term deposits of $34.9 million, and it has had recurring losses from operations and negative operating cash
flows since inception in 2015. BiomX may need to raise additional capital to support its operations and product development activities.
In the near term, BiomX expects to continue to fund its operations and other development activities relating to additional product
candidates from the cash held by CHAC, governmental grants and through future equity and debt financings. BiomX may also seek
funds through arrangements with collaborators or others that may require it to relinquish rights to the product candidates that
it might otherwise seek to develop or commercialize independently. If BiomX enters into a collaboration for one or more of its
current or future product candidates at an earlier development stage, the terms of such a collaboration will likely be less favorable
than if BiomX were to enter the collaboration in later stages or if BiomX commercialized the product independently. If BiomX raises
additional funds through equity offerings, the terms of these securities may include liquidation or other preferences that adversely
affect its stockholders’ rights, or cause significant dilution to BiomX’s stockholders. If BiomX raises additional
capital through debt financing, it would be subject to fixed payment obligations and may be subject to covenants limiting or restricting
its ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends or acquiring
or licensing intellectual property rights.
If additional capital is not available to
BiomX when needed or on acceptable terms, BiomX may not be able to continue to operate its business pursuant to its business plan
and may be required to delay its clinical development. While BiomX believes that its existing cash and cash equivalents, together
with CHAC’s existing resources will be sufficient to fund its planned operations for at least the next 24 months, BiomX cannot
provide assurances that its estimates are accurate, that its plans will not change or that changed circumstances will not result
in the depletion of BiomX’s capital resources more rapidly than it currently anticipates.
Developing
drugs and conducting clinical trials is expensive. BiomX’s future funding requirements will depend on many factors, including:
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the
costs, timing and progress of BiomX’s research and development and clinical activities;
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manufacturing
costs associated with BiomX’s targeted bacteriophage, or phage, therapies strategy and other research and development
activities;
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the
terms and timing of any collaborative, licensing, acquisition or other arrangements that BiomX may establish;
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employee-related
expenses, as well as external costs such as fees paid to outside consultants;
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the
costs and timing of seeking regulatory approvals and related to compliance with regulatory requirements; and
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the
costs of filing, prosecuting, defending and enforcing any patent applications, claims, patents and other intellectual property
rights;
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There
can be no assurance that sufficient funds will be available to BiomX when required or on acceptable terms, if at all. BiomX’s
inability to obtain additional funds could have a material adverse effect on its business, financial condition and results of
operations. Moreover, if BiomX is unable to obtain additional funds on a timely basis, there will be substantial doubt about BiomX’s
ability to continue as a going concern and increased risk of insolvency and up to a total loss of investment by BiomX’s
shareholders.
BiomX’s
limited operating history may make it difficult to evaluate the success of its business to date and to assess its future viability.
Since
inception in 2015, BiomX has devoted substantially all of its resources to developing product candidates with phage technology
through its preclinical programs, building its intellectual property portfolio, developing its supply chain, planning its business,
raising capital and providing general and administrative support for these operations. BiomX has not yet demonstrated its ability
to successfully complete any clinical study or other pivotal clinical trials, obtain regulatory approvals, manufacture a commercial-scale
product, or arrange for a third-party to do so on BiomX’s behalf, or conduct sales and marketing activities necessary for
successful product commercialization. Additionally, BiomX expects its financial condition and operating results to fluctuate significantly
from quarter to quarter and year to year due to a variety of factors, many of which are beyond BiomX’s control. Consequently,
any predictions made about BiomX’s future success or viability may not be as accurate as they could be if BiomX had a longer
operating history.
In
addition, as an early-stage company, BiomX may encounter unforeseen expenses, difficulties, complications, delays and other known
and unknown circumstances. As BiomX advances its product candidates, it will need to transition from a company with a research
focus to a company capable of supporting clinical development and if successful, commercial activities. BiomX may not be successful
in such a transition.
BiomX
has never generated any revenue from product sales and may never be profitable or, if achieved, may not sustain profitability.
BiomX’s
ability to generate meaningful revenue and achieve profitability depends on its ability, and the ability of any third party with
which BiomX may partner, to successfully complete the development of, and meet regulatory requirements, including (but not limited
to) obtaining any necessary regulatory approvals, to commercialize BiomX’s product candidates. BiomX does not currently
meet regulatory requirements or have the required approvals to market its product candidates and may never meet or receive them.
BiomX does not anticipate generating revenue from product sales for the foreseeable future, if ever. If any of BiomX’s product
candidates fail in clinical trials or if any of BiomX’s product candidates do not meet regulatory requirements, including
gaining regulatory approval when needed, or if any of BiomX’s product candidates, if marketed, fail to achieve market acceptance,
BiomX may never become profitable. Even if BiomX achieves profitability in the future, it may not be able to sustain profitability
in subsequent periods. BiomX’s ability to generate future revenue from product sales depends heavily on its success in:
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completing
research and preclinical and clinical development of its product candidates;
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seeking
and obtaining regulatory and marketing approvals for product candidates for which it completes clinical trials;
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meeting
regulatory requirements for marketing the products;
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developing
a sustainable, scalable, reproducible, and transferable manufacturing process for its product candidates;
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launching
and commercializing product candidates for which it obtains regulatory and marketing approval or is otherwise permitted to
market, either by establishing a sales force, marketing and distribution infrastructure or by collaborating with a partner;
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obtaining
market acceptance of any approved products;
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addressing
any competing technological and market developments;
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implementing
additional internal systems and infrastructure, as needed;
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identifying
and validating new product candidates;
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negotiating
favorable terms in any collaboration, licensing or other arrangements into which it may enter;
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maintaining,
protecting and expanding its portfolio of intellectual property rights, including patents, trade secrets and know-how; and
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attracting,
hiring and retaining qualified personnel.
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Even if one or more of the product candidates
that BiomX develops is approved for commercial sale or otherwise permitted for marketing, BiomX anticipates incurring significant
costs associated with commercializing any approved product. BiomX’s expenses could increase beyond expectations if it is
required by the U.S. Food and Drug Administration (“FDA”), the European Medicines Agency (“EMA”) or other
equivalent foreign regulatory agencies to perform clinical trials and other studies in addition to those that it currently anticipates.
Even if BiomX is able to generate revenue from the sale of any approved products, BiomX may not become profitable and may need
to obtain additional funding to continue operations. If BiomX fails to become profitable, or if BiomX is unable to fund its continuing
losses, its business, financial condition and results of operations may be materially adversely impacted.
BiomX
is seeking to develop product candidates using phage technology, an approach for which is difficult to predict the time and cost
of development. To BiomX’s knowledge, no bacteriophage has thus far been sold as a cosmetic or approved as a drug in the
United States or in the European Union.
BiomX is developing its product candidates
with phage technology. BiomX has not, nor to BiomX’s knowledge has any other company, sold its product candidates as cosmetics
or received regulatory approval from the FDA or equivalent foreign regulatory agencies for a product based on this approach. While
in vitro and in vivo studies have characterized the behavior of phage in cell cultures and animal models and there
exists a body of literature regarding the use of phage therapy in humans, the safety and efficacy of phage therapy in humans has
not been extensively studied in well-controlled modern clinical trials. Most of the prior research on phage-based therapy
was conducted in the former Soviet Union prior to and immediately after World War II and lacked appropriate control group design
or lacked control groups at all. Furthermore, the standard of care has changed substantially during the ensuing decades since
those studies were performed, diminishing the relevance of prior claims of improved cure rates. Any product candidates that BiomX
develops may not demonstrate in patients the therapeutic properties ascribed to them in laboratory and other preclinical studies,
and they may interact with human biological systems in unforeseen, ineffective or even harmful ways. BiomX cannot be certain that
its approach will lead to the development of approvable or marketable products. Furthermore, the bacterial targets of phage may
develop resistance to BiomX’s product candidates over time, which BiomX may or may not be able to overcome with the development
of new phage cocktails or BiomX may not be able to construct a cocktail with sufficient coverage of its target pathogen universe.
If BiomX’s product candidates
receive regulatory approval but do not achieve an adequate level of acceptance by physicians, healthcare payors and patients,
BiomX may not generate product revenue sufficient to attain profitability. BiomX’s success will depend upon physicians who
specialize in the treatment of diseases targeted by the BiomX’s product candidates that it pursues as drugs, prescribing
potential treatments that involve the use of BiomX’s product candidates in lieu of, or in addition to, existing treatments
with which they are more familiar and for which greater clinical data may be available. BiomX’s success will also depend
on consumer acceptance and adoption of its products that it commercializes. Adverse events in preclinical studies and clinical
trials of BiomX’s product candidates or in clinical trials of others developing similar products and the resulting publicity,
as well as any other adverse events in the field of phage therapeutics, could result in a decrease in demand for any product that
BiomX may develop. The degree of market acceptance of any approved products will depend on a number of factors, including:
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the
effectiveness of the product;
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the
prevalence and severity of any side effects;
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potential
advantages or disadvantages over alternative treatments;
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relative
convenience and ease of administration;
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the
strength of marketing and distribution support;
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the
price of the product, both in absolute terms and relative to alternative treatments; and
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sufficient
third-party coverage or reimbursement.
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Developing BiomX’s product candidates
on a commercial scale will require substantial technical, financial and human resources. BiomX and its third-party collaborators
may experience delays in developing manufacturing capabilities for BiomX’s product candidates, and may not be able to do
so at the scale required to efficiently conduct the clinical trials required to obtain regulatory approval of those of BiomX’s
product candidates that require it, or to manufacture commercial quantities of BiomX’s products, if approved or otherwise
permitted to be marketed.
BiomX
is considering marketing its lead candidate product—BX001—as a cosmetic, although this positioning also presents some
challenges, as explained in the risk factors below.
Depending in part on how BX001 is marketed, it may
be classified as a cosmetic or a drug or as something else by the FDA and equivalent foreign regulatory agencies. There are fewer
requirements to market cosmetics in the United States; however, if BiomX attempts to market as a cosmetic and the FDA disagrees
with its classification, BiomX may be required to stop marketing the product to pursue approval as a drug and not market the product
again until BiomX receives such approval, which it may not receive.
The FDA and equivalent foreign regulatory
agencies regulate products largely by their intended uses, but may also consider the ingredients of the product. At the current
time, such agencies have not approved a new drug application (“NDA”) or a Biologics License Application (“BLA”)
for a phage product. Products intended to beautify, moisturize, cleanse, or change one’s appearance may be regulated as
cosmetics. Products intended to diagnose, prevent, cure or mitigate a disease or condition are regulated as drugs (or in some
cases, as medical devices). A premarket approval process is not required for cosmetic products. Manufacturers of cosmetics must
test for and assure that finished products and all ingredients are safe prior to marketing them in the United States or the European
Union, and claims may not be made that the product prevents, mitigates or cures a condition or disease. Products that claim to
treat acne are generally regulated as drugs in the United States and the European Union. In the United States, drug products must
either be approved through one of several FDA drug approval pathways or, in the case of some over-the-counter (“OTC”)
drugs, meet the monograph criteria established by U.S. regulation. Similarly, in the European Union, drugs must be approved by
the national regulatory authority or the European Commission before being placed on the national or European market.
If BiomX markets BX001
as a cosmetic, BiomX will not be able to promote the product for the treatment of acne, and its main claims would be limited to
those that are consistent with permitted cosmetic claims, to beautify, moisturize, cleanse or change the appearance of the skin
such as “for beautiful, bright skin” and similar claims. If BiomX markets the product as a cosmetic, it is possible
that the FDA or equivalent foreign regulatory agencies will disagree with BiomX and find that the product should be marketed as
a drug. Although the FDA or equivalent foreign regulatory agencies have not affirmatively decided the regulatory status of phages,
given that their function is antibacterial, it is possible that the such agencies will decide that products containing phages
are drugs regardless of the claims presented on the product or any other considerations. If the FDA evaluates BX001 and determines
that the product is a drug and marketing it as a cosmetic is a prohibited act under the Food, Drug, and Cosmetic Act, it may issue
a Warning Letter and demand that BiomX stop marketing the product unless and until the product is approved as a drug. If the FDA
issues a Warning Letter, it will be made available on the FDA’s website, and BiomX may suffer reputational damage. The same
applies to the national competent authorities in the European Union. There is the risk that if BiomX goes to market with BX001
as a cosmetic, potential competitors will bring the FDA’s or equivalent foreign regulatory authorities’ attention
to the marketing of BX001 as a cosmetic to encourage the FDA or equivalent foreign regulatory authorities to take this very type
of enforcement action against BiomX.
It is possible that the regulatory requirements
or framework will change by the time BiomX is ready to market its product and these changes may eliminate the possibility of marketing
BX001 as a cosmetic. For example, the FDA could affirmatively determine that phages are to be regulated as drugs and are not permitted
in cosmetic products. If this were to occur, then BX001 would need to be approved as a drug in order to be marketed in the United
States and would need to be approved as an OTC drug rather than a prescription drug in order to be sold in products that are also
cosmetics. The same applies in the European Union.
Depending
on the regulatory environment and requirements at the time BX001 is ready for market, BiomX may decide that pursuing a drug approval
(either prescription or OTC) is the better pathway to market, in which case, it will take longer to bring BX001 to market in the
United States and in other countries. And in this case, all other risks generally related to approval pathways would also be applicable
to BX001.
Finally,
even if BiomX is permitted to market BX001 as a cosmetic in one country, this does not guarantee that BiomX will be permitted
to market BX001 as a cosmetic in other countries. Each country has its own distinct requirements for marketing products as cosmetics
and BX001 would need to independently meet each jurisdiction’s requirements.
Regulatory requirements for development of BiomX’s
lead product candidate, BX001, are uncertain and evolving. Changes in these laws or the current interpretation or application of
these laws would have a significant adverse impact on BiomX’s ability to develop and commercialize BX001.
BiomX intends to develop its lead product
candidate, BX001 initially as a cosmetic gel designed to improve the appearance of acne-prone skin. BX001 contains known cosmetic
ingredients combined with phages that are designed to help control the growth of P. acnes, and thereby help improve the
appearance of acne-prone skin.
In the European Union, a product candidate
is considered to be a cosmetic if it is intended to and presented as protecting the skin, maintaining the skin in good condition
or improving the appearance of the skin, provided that it is not a medicinal product due to its composition. With regard to the
ingredients, in the European Union, the composition of a cosmetic may not be such that it has a significant effect on the body
through a pharmacological, immunological or metabolic mode of action. No test has been determined yet for the significance of
the effect. By contrast, a product candidate is a drug if it is intended to or presented as treating or preventing a disease or
restoring, correcting or modifying significantly physiological functions by a pharmacological, immunological or metabolic action.
However, in the European Union, medical or biocidal (i.e. antibacterial) claims may be made for cosmetics, provided that they
are ancillary to the cosmetic claims. As a result, BiomX believes that it may develop BX001 as a cosmetic, including conducting
non-investigational new drug (“IND”) human clinical studies in order to evaluate safety, tolerability and biomarkers
for non-drug applications.
Some countries also regulate other categories
of products that could be relevant such as biocides in the European Union.
Unlike medicinal products, cosmetic products
are generally not subject to premarket approval by regulatory agencies. They however must not contain certain ingredients or concentrations
of ingredients and must be safe and properly labeled in relation to their cosmetic purpose. It remains unclear whether phages are
authorized for use in cosmetic products, in the United States, the European Union and other countries.
Moreover, the FDA or equivalent foreign
regulatory agencies may determine that BX001 is not governed by cosmetics regulations but by pharmaceutical regulations and, therefore
may classify BX001 as being ineligible for use in clinical studies without a regulatory approval. A determination that BX001 does
not meet the regulatory cosmetic requirements of the FDA or equivalent foreign regulatory agencies could cause a delay in the commercialization
of BX001, which may lead to reduced acceptance by the public or others. Any such determination could prevent BiomX’s reliance
on existing regulatory frameworks to conduct non-IND human clinical studies for BX001 and could significantly increase the cost
of and delay the commercialization of BX001.
Should BiomX choose to develop and commercialize
BX001 as a cosmetic and if the FDA or equivalent foreign regulatory agencies determine BX001 falls outside the cosmetics regulations,
the agency could ask BiomX to withdraw BX001 from the market. In addition, if new safety issues are raised by cosmetic clinical
studies for BX001, then BiomX’s ability to seek an IND to conduct clinical trials intended to lead toward approval of the
product as a drug, if pursued, could be adversely affected, for example the FDA or equivalent foreign regulatory agencies could
ask BiomX to modify approved labeling for or withdraw BX001 from the market.
BiomX
is seeking to develop product candidates to improve the appearance of acne-prone skin and treat medical conditions related to
the presence of certain bacteria. BiomX’s success is largely dependent on a broad degree of market acceptance, and in the
case of drug products, physician adoption and use, which are necessary for commercial success.
Even
if Biomx obtains FDA or foreign regulatory approvals for its drug product candidates, or BX001 is permitted to be marketed as
a cosmetic, the commercial success of BiomX’s product candidates will depend on consumer acceptance and adoption of products
that BiomX commercializes. Adverse events in preclinical studies and clinical trials of BiomX’s product candidates or in
clinical trials of others developing similar products and the resulting publicity could result in a decrease in demand for any
product that BiomX may develop.
In
addition, the commercial success of BiomX’s drug product candidates will depend significantly on their broad adoption and
use by dermatologists, pediatricians and other physicians for approved therapeutic indications, as well as any other indications
for which BiomX may seek approval. Biomx cannot be certain that its approach will lead to the development of approvable or marketable
products.
Obtaining
high titers for specific phage cocktails necessary for BiomX’s preclinical and clinical testing may be difficult and time-consuming.
BiomX’s
product candidates are phage cocktails that it has designed to meet specific characteristics. BiomX and BiomX’s contract
manufacturers produce a cocktail of multiple phage and it may be difficult or time-consuming to achieve high titers, or levels,
of phage sufficient for BiomX’s preclinical and clinical testing. In some cases, it may require multiple product runs in
order for BiomX to obtain the amounts necessary for its clinical testing. This may result in delays in BiomX’s clinical
trial timelines, and it may increase production costs and associated expenses. Also, it may be difficult to reproduce the manufacturing
process to the extent that more significant quantities are required as BiomX’s product candidates advance through the clinical
development process.
BiomX’s
product candidates must undergo clinical testing which may fail to demonstrate the requisite safety and tolerability for cosmetics,
safety and efficacy for drug products, or safety, purity, and potency for biologics, and any of BiomX’s product candidates
could cause adverse effects, which would substantially delay or prevent regulatory approval and/or commercialization.
Before BiomX can obtain
regulatory approval for a product candidate or otherwise obtain evidence allowing BiomX to market the product, it must undertake
extensive preclinical and clinical testing in humans to demonstrate safety and efficacy to the satisfaction of the FDA or other
regulatory agencies. Clinical trials of product candidates sufficient to obtain regulatory marketing approval or otherwise demonstrate
safety prior to marketing, are expensive and take years to complete, especially for the BiomX product candidate designed to treat
colorectal cancer as the phage will be genetically modified, which could make the conduct of clinical trials more complex. Furthermore,
results from these clinical trials may not show safety or efficacy of BiomX’s product candidates sufficient to lead to approval,
or to warrant further development. For example, BiomX’s approach is intended to design phage combinations, or cocktails,
to target specific strains of pathogenic bacteria in order to alter microbiome composition and confer potential therapeutic or
cosmetic benefit to patients. However, there can be no assurance that the eradication of the selected targets will result in a
clinically meaningful effect on the underlying disease, such as in cases where the pathology of the disease is not well-defined.
In addition, the bacteria that BiomX targets may be associated with the disease, but may not be causative or contributive to the
pathology of the disease, or there may be other bacteria that BiomX’s product candidates do not target that are more meaningful
drivers of the underlying disease. In addition, BiomX’s product candidates require the use of effective delivery vehicles
to reach the target organ or tissue, and there can be no assurance that BiomX’s intended delivery systems will allow it
product candidates to reach the desired locations in a patient. Safety must first be established through preclinical testing and
early clinical trials, before efficacy can be evaluated and established and thereby lead to FDA or other regulatory agencies marketing
approval. BiomX’s clinical trials may produce undesirable side effects or negative or inconclusive results, and BiomX may
decide, or regulators may require it, to conduct additional clinical and/or preclinical testing or to abandon programs.
If
BiomX is not able to obtain, or if there are delays in obtaining, required regulatory approvals for its product candidates for
therapeutic indications, BiomX will not be able to commercialize, or will be delayed in commercializing, its product candidates,
and its future ability to generate revenue will be materially impaired.
BiomX’s
product candidates and the activities associated with their development and commercialization for therapeutic indications, including
their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale,
distribution, import and export are subject to regulation by the FDA and other regulatory agencies in the United States and by
equivalent foreign regulatory authorities. Before BiomX can commercialize any of its product candidates for therapeutic indications,
BiomX must obtain marketing approval. BiomX has not received approval to market any of its product candidates from regulatory
authorities in any jurisdiction, and it is possible that none of BiomX’s product candidates or any product candidates it
may seek to develop in the future will ever obtain regulatory approval.
The
process of obtaining regulatory approvals for therapeutic indications, both in the United States and in other countries, is expensive,
may take many years if additional clinical trials are required, and can vary substantially based upon a variety of factors, including
the type, complexity and novelty of the product candidates involved. Changes in marketing approval policies during the development
period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted
IND, NDA or equivalent application types, may cause delays in the approval or rejection of an application. The FDA and equivalent
foreign regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or
may decide that BiomX’s data is insufficient for approval and require additional preclinical, clinical or other studies.
BiomX’s product candidates could be delayed in receiving, or fail to receive, regulatory approval for many reasons, including
the following:
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the
FDA or equivalent foreign regulatory authorities may disagree with the design, including
study population, dose level, dose regimen, and bioanalytical assay methods, or implementation
of BiomX’s clinical trials;
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BiomX
may be unable to demonstrate to the satisfaction of the FDA or equivalent foreign regulatory
authorities that a drug candidate is safe and effective for its proposed indication or
a related companion diagnostic is suitable to identify appropriate patient populations;
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the
results of clinical trials may not meet the level of statistical significance required
by the FDA or equivalent foreign regulatory authorities for approval;
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BiomX
may be unable to demonstrate that a drug product candidate’s clinical and other
benefits outweigh its safety risks;
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the
FDA or equivalent foreign regulatory authorities may disagree with BiomX’s interpretation
of data from preclinical studies, non-IND human clinical studies or clinical trials;
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the
data collected from clinical trials of BiomX’s product candidates may not be sufficient
to support the submission of an NDA or other submission or to obtain regulatory approval
in the United States or elsewhere;
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the
FDA or equivalent foreign regulatory authorities may fail to approve the manufacturing
processes or facilities of third-party manufacturers with which BiomX contracts for clinical
and commercial supplies; and
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the
approval policies or regulations of the FDA or equivalent foreign regulatory authorities
may significantly change in a manner rendering BiomX’s clinical data insufficient
for approval.
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Of
the large number of drugs in development, only a small percentage successfully complete the FDA or equivalent foreign regulatory
approval processes and are commercialized. The lengthy approval process as well as the unpredictability of future clinical trial
results may result in BiomX failing to obtain regulatory approval to market its product candidates, which would significantly
harm BiomX’s business, results of operations and prospects.
The
FDA may also require a panel of experts, referred to as an Advisory Committee, to deliberate on the adequacy of the safety
and efficacy data to support approval for therapeutic indications. The opinion of the Advisory Committee, although not
binding, may have a significant impact on our ability to obtain approval of any product candidates that we develop based on
the completed clinical trials. In the European Union, the safety and efficacy data of BiomX’s product candidate for
treatment of colorectal cancer will be reviewed by the EMA’s Committee for Advanced Therapies (“CAT”), a
group of experts in advanced therapy medicinal products. BiomX’s other product candidates would be reviewed by
CAT as well if the EMA were to consider that they also qualify as advanced therapy medicinal products.
Moreover,
under the Pediatric Research Equity Act (“PREA”), in the United States, and the Paediatric Regulation, in the European
Union, the FDA or equivalent foreign regulatory authority could require mandatory testing in the pediatric population. Applications
for approval in the United States or in the European Union must contain data to assess the safety and efficacy of the biologic
for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric
subpopulation for which the product is safe and effective. The FDA or equivalent foreign regulatory authority may, in its discretion,
grant full or partial waivers, or deferrals, for submission of data in pediatric subjects. If the FDA requires data in pediatric
patients, significantly more capital will have to be invested in order to conduct the mandatory pediatric clinical trials and
studies, but the approval of the medicinal products for the adult population should normally not be affected. If the results of
such pediatric studies are not positive, BiomX’s product candidates will not be approved for children.
In
addition, even if BiomX were to obtain approval, regulatory authorities may approve any of its product candidates for fewer or
more limited therapeutic indications than BiomX requests, may include limitations for use or contraindications that limit the
suitable patient population, may not approve the price BiomX intends to charge for its products, may grant approval contingent
on the performance of costly post-marketing clinical trials or may approve a product candidate with a label that does not include
the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing
scenarios could materially harm the commercial prospects for BiomX’s product candidates.
If
BiomX experiences delays in obtaining approval or if it fails to obtain approval of its product candidates, the commercial prospects
for its product candidates may be harmed and its future ability to generate revenues will be materially impaired.
Results
from preclinical studies of BiomX’s product candidates BX001 and BX002 may not be predictive of the results of clinical
trials or later stage clinical development.
Preclinical
studies of BiomX’s product candidates BX001 and BX002, including studies in animal disease models in the case of BX002 may
not accurately predict the safety of the product candidate such that further human clinical trials would be allowed to proceed.
In particular, promising preclinical testing suggesting the potential efficacy of prototype phage products may not predict the
ability of these products to address conditions in the human clinical settings. For example, while BiomX has studied phage activity
in vitro and in vivo, in the case of BX002, these results may not be replicated when BiomX’s phage cocktails are administered
to human subjects. Despite promising data in any preclinical studies, BiomX’s phage technology may be found not to be efficacious
when studied in clinical trials.
To
satisfy FDA or equivalent foreign regulatory approval standards, BiomX must demonstrate safety for any cosmetic product, and it
must demonstrate in adequate and well controlled clinical trials that its drug product candidates are safe and effective for their
intended use. Success in preclinical testing and early-stage clinical trials does not ensure that later clinical trials will be
successful. BiomX’s initial results from preclinical testing also may not be confirmed by later analysis or subsequent larger
clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical
trials, even after obtaining promising results in earlier clinical trials, and most product candidates that commence clinical
trials are never approved for commercial sale.
For
products that require regulatory approvals, BiomX is subject to significant regulatory approval requirements, which could delay,
prevent or limit BiomX’s ability to market its product candidates.
BiomX’s
research and development activities, preclinical studies, clinical trials and the anticipated manufacturing and marketing of its
drug product candidates are subject to extensive regulation by the FDA and other regulatory agencies in the United States and
by comparable authorities in Europe and elsewhere. To satisfy FDA or equivalent foreign regulatory approval standards, BiomX must
demonstrate in adequate and well controlled clinical trials that its drug product candidates are safe and effective for their
intended use. The regulatory approval process is expensive and time-consuming, and the timing of receipt of regulatory approval
is difficult to predict. Given the uncertainties around phage therapy, BiomX’s product candidates could require a significantly
longer time to gain regulatory approval than expected, or may never gain approval. This is especially so for the product candidate
designed to treat colorectal cancer as the phage will be genetically modified, which adds potential complexity to the process,
particularly in the European Union. BiomX cannot be certain that, even after expending substantial time and financial resources,
it will obtain regulatory approval for any of its product candidates. A delay or denial of regulatory approval could delay or
prevent BiomX’s ability to generate product revenue and to achieve profitability.
The
legal and regulatory status of phage therapy remains unclear in many countries, including the European Union. Changes in regulatory
approval policies during the development period of any of BiomX’s product candidates, changes in, or the enactment of, additional
regulations or statutes, or changes in regulatory review practices for a submitted product application may cause a delay in obtaining
approval or result in the rejection of an application for regulatory approval.
Regulatory
approval, if obtained, may be made subject to limitations on the indicated uses for which BiomX may market a product, as well
as the approved labeling for the product. These limitations could adversely affect BiomX’s potential product revenue. Regulatory
approval may also be conditioned on costly post-marketing follow-up studies. In addition, the labeling, packaging, adverse event
reporting, storage, advertising, promotion and recordkeeping related to the product will be subject to extensive ongoing regulatory
requirements. Furthermore, for any marketed product, its manufacturer and its manufacturing facilities will be subject to registration
and listing requirements and continual review and periodic inspections by the FDA or other regulatory authorities. Failure to
comply with applicable regulatory requirements may, among other things, result in fines, suspensions of regulatory approvals,
product recalls, product seizures, operating restrictions and criminal prosecution.
If
BiomX encounters difficulties enrolling patients in its clinical trials, BiomX’s clinical development activities could be
delayed or otherwise adversely affected.
Completion
of clinical trials depends, among other things, on BiomX’s ability to enroll a sufficient number of patients, which is a
function of many factors, including:
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the
therapeutic endpoints chosen for evaluation;
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the
eligibility criteria defined in the protocol;
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the
perceived benefit of the product candidate under study;
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the
size of the patient population required for analysis of the clinical trial’s therapeutic endpoints;
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BiomX’s
ability to recruit clinical trial investigators and sites with the appropriate competencies and experience;
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BiomX’s
ability to obtain and maintain patient consents; and
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competition
for patients from clinical trials for other treatments.
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BiomX
may experience difficulties in enrolling patients in its clinical trials, which could increase the costs or affect the timing
or outcome of these clinical trials. This is particularly true with respect to diseases with relatively small patient populations.
In addition, potential patients for BiomX’s trials may not be adequately diagnosed or identified with the diseases that
BiomX is targeting or may not meet the entry criteria for BiomX’s studies.
BiomX
may not be able to initiate or continue clinical trials if it is unable to locate a sufficient number of eligible patients to
participate in the clinical trials required by the FDA or equivalent foreign regulatory agencies. In addition, the process of
finding and diagnosing patients may prove costly. BiomX’s inability to enroll a sufficient number of patients for any of
its clinical trials would result in significant delays or may require BiomX to abandon one or more clinical trials.
Delays
in BiomX’s clinical trials could result in BiomX not achieving anticipated developmental milestones when expected, increased
costs and delays in BiomX’s ability to obtain regulatory approval for and commercialization of BiomX’s product candidates.
Delays
in BiomX’s ability to commence its clinical trials could result in BiomX not meeting anticipated clinical milestones and
could materially impact BiomX’s product development costs and delay regulatory approval of BiomX’s product candidates.
For example, BiomX plans to initiate Phase 1 clinical trials to explore the safety and tolerability of BX002 in 2020. However,
planned clinical trials may not be commenced or completed on schedule, or at all.
Clinical
trials can be delayed for a variety of reasons, including:
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delays
in the development of manufacturing capabilities for BiomX’s product candidates to enable their consistent production
at clinical trial scale;
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failures
in BiomX’s internal manufacturing operations that result in BiomX’s inability to consistently and timely produce
bacteriophages in sufficient quantities to support BiomX’s clinical trials;
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the
availability of financial resources to commence and complete BiomX’s planned clinical trials;
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delays
in reaching a consensus with clinical investigators on study design;
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delays
in reaching a consensus with regulatory agencies on trial design or in obtaining regulatory approval to commence a trial;
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delays
in obtaining clinical materials;
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slower
than expected patient recruitment for participation in clinical trials;
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regulatory
constraints or injunctions (for example, from supervisory authorities in case of non-compliance with cybersecurity and data
privacy laws);
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failure
by clinical trial sites, other third parties or BiomX to adhere to clinical trial agreements;
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delays
in reaching agreement on acceptable clinical trial agreement terms with prospective sites or obtaining institutional review
board approval; and
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adverse
safety events experienced during BiomX’s clinical trials.
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If
BiomX does not successfully commence or complete its clinical trials on schedule, the price of BiomX’s common stock may
decline. Significant preclinical or clinical trial delays could shorten any periods during which BiomX may have the exclusive
right to commercialize BiomX’s product candidates or allow BiomX’s competitors to bring products to market before
it does, potentially impairing BiomX’s ability to successfully commercialize its product candidates and harming its business
and results of operations.
BiomX’s
current or future product candidates may cause adverse effects that could halt their clinical development, prevent their approval
or marketing, limit their commercial potential or result in significant negative consequences.
Adverse
effects could occur and cause BiomX or regulatory authorities to interrupt, delay or halt clinical trials and could result in
a more restrictive label or the delay or denial of marketing approval by the FDA or equivalent foreign regulatory agencies. Similarly,
such adverse effects would prevent marketing BX001 as a cosmetic. Results of BiomX’s trials could reveal a high and unacceptable
severity and prevalence of side effects or unexpected characteristics.
If
adverse effects arise in the development of BiomX’s product candidates, BiomX, the FDA or equivalent foreign regulatory
agencies, the Institutional Review Boards (“IRBs”) or independent ethics committees at the institutions in which BiomX’s
studies are conducted, or the Data Safety Monitoring Board (“DSMB”) could suspend or terminate BiomX’s clinical
trials or the FDA or equivalent foreign regulatory agencies could deny approval of BiomX’s product candidates for any or
all targeted indications. Adverse events in studies with BX001 as a cosmetic may lead BiomX to stop its marketing.
BiomX
intends to evaluate its product candidates for safety and tolerability in the form of Phase 1 clinical trials. None of BiomX’s
product candidates have completed this testing to date, and BiomX intends to initiate the first human studies of BX001 in 2019.
While BiomX’s current and future product candidates will undergo safety testing to the extent possible and, where applicable,
under such conditions discussed with regulatory authorities, not all adverse effects of drugs can be predicted or anticipated.
Unforeseen adverse effects could arise either during clinical development or, if such adverse effects are more rare, after BiomX’s
products have been approved by regulatory authorities and the approved product has been marketed, resulting in the exposure of
additional patients. For example, while BiomX screens its phages in attempts to minimize safety issues, there can be no assurance
that BiomX will eliminate the risk of the appearance of virulence genes, antibiotic resistance genes, lysogenic genes, integrase
genes, or other toxic genes in BiomX’s phages, or of adverse reactions to BiomX’s phages in a patient’s immune
system. So far, BiomX has not demonstrated, and BiomX cannot predict, if ongoing or future clinical trials will demonstrate that
any of its product candidates are safe in humans. Moreover, clinical trials of BiomX’s product candidates are conducted
in carefully defined sets of patients who have agreed to enter into clinical trials. Consequently, it is possible that BiomX’s
clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect,
if any, or alternatively fail to identify undesirable adverse effects.
Ultimately,
some or all of BiomX’s product candidates may prove to be unsafe for human use. Moreover, BiomX could be subject to significant
liability if any volunteer or patient suffers, or appears to suffer, adverse health effects as a result of participating in its
clinical trials. Any of these events could prevent BiomX from achieving or maintaining market acceptance of its product candidates
and could substantially increase commercialization costs.
BiomX
has not completed composition development of its product candidates.
The
development of BiomX’s product candidates requires that BiomX isolate, select, optimize and combine a number of phages that
target the desired bacteria for that product candidate. The selection of phages for any of BiomX’s product candidates is
based on a variety of factors, including, without limitation, the ability of the selected phages, in combination, to successfully
kill the targeted bacteria, the degree of cross-reactivity of the individual phages with the same part of the bacterial targets,
the ability of the combined phages to satisfy regulatory requirements, BiomX’s ability to manufacture sufficient quantities
of the phages, intellectual property rights of third parties, and other factors. While BiomX has selected initial formulations
of BX001 and BX002, there can be no assurance that these initial formulations will be the final formulations of these product
candidates for commercialization if approved. If BiomX is unable to complete formulation development of its product candidates
in the time frame that it has anticipated, then BiomX’s product development time lines, and the regulatory approval of BiomX’s
product candidates, could be delayed.
BiomX
must continue to develop manufacturing processes for its product candidates, and any delay in doing so, or BiomX’s inability
to do so, would result in delays in BiomX’s clinical trials.
The
manufacturing processes for BiomX’s product candidates, and the scale-up of such processes for clinical trials, may present
challenges, and there can be no assurance that BiomX will be able to complete this work in a timely manner, if at all. Any delay
in the development or scale-up of these manufacturing processes could delay the start of clinical trials and harm BiomX’s
business. In order to scale-up BiomX’s manufacturing capacity, BiomX needs to either build additional internal manufacturing
capacity, contract with one or more partners, or both. BiomX’s technology and the production process for BiomX’s equipment
and tools are complex and BiomX may encounter unexpected difficulties in manufacturing its product candidates. For example, the
manufacturing hosts that BiomX use to produce BiomX’s phages may contain one or more integrated phages in their genomes
that, if BiomX are unable to remove, can present challenges in manufacturing of the produced phages. There is no assurance that
BiomX will be able to continue to build manufacturing capacity internally or find one or more suitable partners, or both, to meet
the necessary volume and quality requirements. Manufacturing and product quality issues may arise as BiomX increases the scale
of its production. Any delay or inability in establishing or expanding BiomX’s manufacturing capacity could diminish BiomX’s
ability to develop its product candidates.
In the third quarter of 2019, BiomX
opened its own current Good Manufacturing Process (“cGMP”) manufacturing facility at its headquarters in Ness Ziona,
Israel. BiomX’s facility must undergo ongoing inspections for compliance with cGMP regulations before the respective product
candidates can be approved for use in clinical trials or commercialization. In the event this facility does not receive a satisfactory
cGMP inspection for the manufacture of BiomX’s product candidates, BiomX may need to fund additional modifications to its
manufacturing process, conduct additional validation studies or find alternative manufacturing facilities, any of which would
result in significant cost to BiomX as well as a delay of up to several years in obtaining approval for such product candidate.
The manufacturing facility
will be subject to ongoing periodic inspection for compliance with European, FDA and cGMP regulations. Compliance with these regulations
and standards is complex and costly, and there can be no assurance that BiomX will be able to comply. Any failure to comply with
applicable regulations could result in sanctions being imposed (including fines, injunctions and civil penalties), failure of
regulatory authorities to grant marketing approval of BiomX’s product candidates, delays, suspension or withdrawal of approvals,
license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecution.
If
BiomX’s competitors are able to develop and market products that are more effective, safer or more affordable than BiomX’s,
or obtain marketing approval before BiomX does, BiomX’s commercial opportunities may be limited.
Competition in the biotechnology
and pharmaceutical industries is intense and continues to increase. Some companies that are larger and have significantly more
resources than BiomX are aggressively pursuing development programs for indications that BiomX is pursuing, including traditional
therapies and therapies with novel mechanisms of action. In addition, other companies are developing phage-based products for
therapeutic and non-therapeutic uses, and may elect to use their expertise in phage development and manufacturing to try to develop
products that would compete with BiomX’s products.
BiomX
also faces potential competition from academic institutions, government agencies and private and public research institutions
engaged in the discovery and development of drugs and therapies. Many of BiomX’s competitors have significantly greater
financial resources and expertise in research and development, preclinical testing, conducting clinical trials, obtaining regulatory
approvals, manufacturing, sales and marketing than BiomX does. Smaller or early-stage companies may also prove to be significant
competitors, particularly through collaborative arrangements with large and established pharmaceutical companies.
In
the European Union, potential competition also comes from medicinal preparations made by hospitals or pharmacists and administered
without marketing authorizations, generally referred to as “compounding.” In some member states, national authorities
generally promote compounding in order to reduce healthcare expenses.
BiomX’s
competitors may succeed in developing products that are more effective, have fewer side effects and are safer or more affordable
than BiomX’s product candidates, which would render BiomX’s product candidates less competitive or noncompetitive
and would prevent the granting or maintenance of an orphan designation. These competitors also compete with BiomX to recruit and
retain qualified scientific and management personnel, establish clinical trial sites and patient registration for clinical trials,
as well as to acquire technology and technology licenses complementary to BiomX’s programs or advantageous to BiomX’s
business. Moreover, competitors that are able to achieve patent protection, obtain regulatory approvals and commence commercial
sales of their products before BiomX does, and competitors that have already done so may enjoy a significant competitive advantage.
BX001
faces significant competition in the market.
The
facial aesthetic market is highly competitive and dynamic, and is characterized by rapid and substantial technological development
and product innovations. If BX001 can be marketed as a cosmetic, it may face significant competition from other facial aesthetic
products. Due to less stringent regulatory requirements, there are many more possibilities for marketing cosmetics in international
markets than there are in the United States. There are also fewer limitations on the claims that BiomX’s competitors in
international markets can make about the effectiveness of their products and the manner in which they can market them. As a result,
if BiomX partners with other companies in these markets and launches its products, it may face more competition in these markets
than in the United States.
Legal
requirements as well as ethical and social concerns about synthetic biology and genetic engineering could limit or prevent the
use of BiomX’s technologies and limit BiomX’s revenues.
BiomX’s
technology may include the use of synthetic biology and genetic engineering. In some countries, drugs made using genetically modified
organisms may be subject to a more stringent legal regime, which could prove to be complex and very challenging, especially for
a small life sciences company. For example, in the European Union, the rules on genetically modified organisms would apply in
addition to the general rules on medicinal products or cosmetic products. The rules on advanced therapy medicinal products may
also apply.
Additionally,
public perception about the safety and environmental hazards of, and ethical concerns over, synthetic biology and genetic engineering
could influence public acceptance of BiomX’s technologies, product candidates and processes. If BiomX and its collaborators
are not able to overcome the legal challenges as well as the ethical and social concerns relating to synthetic biology and genetic
engineering, BiomX’s technologies, product candidates and processes may not be accepted. These challenges and concerns could
result in increased expenses, regulatory scrutiny and increased regulation, trade restrictions on imports of BiomX’s product
candidates, delays or other impediments to BiomX’s programs or the public acceptance and commercialization of BiomX’s
products. BiomX designs and produces product candidates with characteristics comparable or superior to those found in naturally
occurring organisms or enzymes in a controlled laboratory; however, the release of such organisms into uncontrolled environments
could have unintended consequences. Any adverse effect resulting from such a release could have a material adverse effect on BiomX’s
business, financial condition or results of operations, and BiomX may have exposure to liability for any resulting harm.
BiomX
may not be successful in its efforts to identify or discover additional product candidates.
Although
BiomX intends to utilize its technology to evaluate other therapeutic opportunities in addition to the product candidates that
BiomX is currently developing, BiomX may fail to identify other product candidates for clinical development for a number of reasons.
For example, BiomX’s research methodology may not be successful in identifying potential product candidates, or those BiomX
identify may be shown to have harmful side effects or other characteristics that make them unmarketable or unlikely to receive
regulatory approval. In addition, BiomX may not be able to identify phages that eradicate the target bacteria, including due to
sourcing difficulties such as lack of diversity, inability to obtain samples in a timely manner or at all, or contamination in
the samples. BiomX may also encounter difficulties in designing phage cocktails that meet the requirements of an investigational
therapy, including due to the build-up of resistances in bacteria to BiomX’s phages, the range of host bacteria that are
affected by BiomX’s phages, the variety of activity on different bacteria growth states, issues with toxicity in BiomX’s
phages, and the stability, robustness and ease of manufacturing of BiomX’s product candidates. In addition, the designing
of synthetically engineered phages may fail to result in the development of phages with the desired characteristics or behaviors
that are suitable for use as viable therapies, or may result in phages that contain undesired features such as immunogenicity,
toxicity and other safety concerns.
A
key part of BiomX’s strategy is to utilize its screening technology to identify product candidates to pursue in clinical
development. If BiomX fails to identify and develop additional potential product candidates, BiomX may be unable to grow its business
and its results of operations could be materially harmed. Such product candidates will require additional, time-consuming development
efforts prior to commercial sale, including preclinical studies, clinical trials and approval by the FDA and/or applicable foreign
regulatory agencies. All product candidates are prone to the risks of failure that are inherent in pharmaceutical product development.
BiomX
may expend its limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates
or indications that may be more profitable or for which there is a greater likelihood of success.
Because
BiomX has limited financial and managerial resources, BiomX intends to focus on developing product candidates for specific indications
that BiomX identifies as most likely to succeed, in terms of both their potential for marketing approval and commercialization.
As a result, BiomX may forego or delay pursuit of opportunities with other product candidates or for other indications that may
prove to have greater commercial potential.
BiomX’s
resource allocation decisions may cause it to fail to capitalize on viable commercial products or profitable market opportunities.
BiomX’s spending on current and future research and development programs and product candidates for specific indications
may not yield any commercially viable product candidates. If BiomX does not accurately evaluate the commercial potential or target
market for a particular product candidate, BiomX may relinquish valuable rights to that product candidate through collaboration,
licensing or other royalty arrangements in cases in which it would have been more advantageous for BiomX to retain sole development
and commercialization rights to the product candidate.
BiomX’s
success depends, in part, on its ability to retain key executives and to attract, retain and motivate qualified personnel.
BiomX
is highly dependent on Jonathan Solomon, its CEO, as well as the other principal members of BiomX’s management, scientific
and clinical team. Although BiomX has entered into employment agreements with its executive officers, each of them may terminate
their employment with BiomX at any time. BiomX does not maintain “key person” insurance for any of its executives
or other employees. The loss of the services of any of BiomX’s executive officers, other key employees, and other scientific
and medical advisors, and BiomX’s inability to find suitable replacements could result in delays in product development
and harm BiomX’s business.
BiomX’s
continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel and BiomX’s
ability to develop and maintain important relationships with leading academic institutions, clinicians and scientists is critical
to BiomX’s success. Competition for qualified personnel in the biotechnology field is intense, particularly in Israel where
BiomX’s headquarters are located. BiomX faces competition for personnel from other biotechnology and pharmaceutical companies,
universities, public and private research institutions and other organizations. BiomX also faces competition from other more well-funded
and well-established businesses and BiomX may also be viewed as a riskier choice from a job stability perspective due to BiomX’s
relatively newer status than longer existing biotech and pharmaceutical companies. BiomX may not be able to attract and retain qualified
personnel on acceptable terms given the competition for such personnel. If BiomX is unsuccessful in BiomX’s retention, motivation
and recruitment efforts, BiomX may be unable to execute its business strategy.
There
is a substantial risk of product liability claims in BiomX’s business. If BiomX does not obtain sufficient liability insurance,
a product liability claim could result in substantial liabilities to it.
BiomX’s
business exposes it to significant potential product liability risks that are inherent in the development, manufacturing and marketing
of human therapeutic products. Regardless of merit or eventual outcome, product liability claims may result in:
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delay
or failure to complete BiomX’s clinical trials;
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withdrawal
of clinical trial participants;
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decreased
demand for BiomX’s product candidates;
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injury
to BiomX’s reputation;
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litigation
costs;
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substantial
monetary awards against BiomX; and
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diversion
of management or other resources from key aspects of BiomX’s operations.
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If BiomX succeeds in marketing products,
product liability claims could result in an FDA or equivalent foreign regulatory agency investigation of the safety or efficacy
of BiomX’s products, its manufacturing processes and facilities or its marketing programs. Such investigation could also
potentially lead to a recall of BiomX’s products or more serious enforcement actions, or limitations on the indications,
for which they may be used, or suspension or withdrawal of approval.
BiomX
has clinical trial insurance that covers its clinical trial for up to a $3.0 million annual per claim and aggregate limit. BiomX
intends to expand its insurance coverage to include the sale of commercial products if marketing approval is obtained for BiomX’s
product candidates or any other compound that BiomX may develop. However, insurance coverage is expensive and BiomX may not be
able to maintain insurance coverage at a reasonable cost or at all, and the insurance coverage that BiomX obtain may not be adequate
to cover potential claims or losses.
Failure
to comply with health and data protection laws and regulations could lead to claims, government enforcement actions (which could
include civil or criminal penalties), regulatory actions, private litigation and/or adverse publicity and could negatively affect
BiomX’s operating results and business.
BiomX may be subject to federal, state
and foreign data protection laws and regulations (i.e., laws and regulations that address privacy and security). In the United
States, numerous federal and state laws and regulations, including federal health information privacy laws, state consumer privacy
laws, state data breach notification laws, state health information privacy laws and federal and state consumer protection laws
(e.g., Section 5 of the Federal Trade Commission Act), that govern the collection, use, disclosure and protection of health-related
and other personal information could apply to BiomX’s operations or the operations of BiomX’s collaborators. In addition,
BiomX may obtain health information from third parties (including research institutions from which BiomX obtains clinical trial
data) that are subject to privacy and security requirements under the HIPAA (as defined below), as amended by HITECH (as defined
below). Depending on the facts and circumstances, BiomX could be subject to criminal penalties if BiomX knowingly obtains, uses,
or discloses individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized
or permitted by HIPAA.
Additional requirements may also be
imposed by international data protection laws. In this context, Regulation 2016/679, the General Data Protection Regulation (the
“GDPR”) (in addition to many other international data protection laws) may have an impact on BiomX’s operations
when it collects and/or process personal data of individuals located in the European Union. The GDPR has applied since May 25,
2018 (replacing previously applicable data protection frameworks) and has an extraterritorial reach. The GDPR allows members states
to introduce specific requirements in relation to certain areas, including processing of special categories of data, and BiomX
may face further restrictions and non-compliance risks under such national frameworks. BiomX has not yet assessed whether its
activities might be caught by the GDPR.
Because of the types of data BiomX collects
and processes, which may involve health, biometric and genetic data, BiomX may face high risks for non-compliance with the GDPR
rules (or local declinations of GDPR-rules across the different European Union Member States), as these types of data are considered
as special categories of data and are granted higher protection. The risks are further increased considering the diverging approach
in the European Union as to the rules, requirements and frameworks in relation to the processing of personal data in clinical
trials (in matters such as the choice of the legal basis for the processing of data, the possible uses of the personal data collected,
etc.) and the interplay with other relevant frameworks. The GDPR introduced stringent data protection requirements in the European
Union, as well as potential fines for non-compliant companies of up to the greater of €20 million or 4% of annual worldwide
turnover. Supervisory authorities also have the ability to restrict BiomX’s processing activities if those are deemed not
to be in compliance with the GDPR (or local declinations); this may significantly impact the way BiomX conducts its activities.
The GDPR imposes numerous requirements for the collection, use and disclosure of personal data, including high standards for consent
to be valid, and specific information to be provided to individuals about how their personal data is used, the obligation to notify
regulators and (in some cases) to communicate to affected individuals of personal data breaches, extensive new internal privacy
governance requirements and obligations to allow individuals to exercise their strengthened privacy rights (e.g., the right to
access, correct and delete their personal data, to withdraw their consent, etc.), and obligations when contracting with third
parties such as service provides, CROs, etc. In addition, the GDPR includes restrictions on data transfers outside the European
Economic Area (“EEA”). The actual mechanisms made available under GDPR to transfer such personal data have recently
received heightened regulatory and judicial scrutiny. If BiomX cannot rely on existing mechanisms for transferring personal data
from the EEA, the United Kingdom, or other jurisdictions, BiomX may be unable to transfer personal data in those regions. Further,
the United Kingdom’s vote in favor of exiting the European Union, often referred to as “Brexit,” has created
uncertainty as to whether or not the United Kingdom data protection legislation will depart from the GDPR and how data transfers
to and from the United Kingdom will be regulated.
Compliance
with U.S. and international data protection laws and regulations could require BiomX to take on more onerous obligations in BiomX’s
contracts, restrict BiomX’s ability to collect, use and disclose data, or in some cases, impact BiomX’s ability to
operate in certain jurisdictions. Such laws and regulations could limit BiomX’s ability to use and share personal or other
data, thereby increasing BiomX’s costs and harming BiomX’s business and financial condition. Failure to comply with
U.S. and international data protection laws and regulations could result in claims, government enforcement actions (which could
include civil or criminal penalties), regulatory actions, private litigation and/or adverse publicity and could negatively affect
BiomX’s operating results and business. Moreover, clinical trial subjects about whom BiomX or BiomX’s potential collaborators
obtain information, as well as the providers who share this information with us, may contractually limit BiomX’s ability
to use and disclose the information. Claims that BiomX has violated individuals’ privacy rights, failed to comply with data
protection laws, or breached BiomX’s contractual obligations, even if it is not found liable, could be expensive and time
consuming to defend and could result in adverse publicity that could harm BiomX’s business. Finally, BiomX may be required
to disclose personal data pursuant to demands from government agencies, from law enforcement agencies, and from intelligence agencies.
This disclosure may result in a failure or perceived failure by BiomX to comply with data privacy laws, rules, and regulations
and could result in proceedings or actions against BiomX in the same or other jurisdictions, and could have an adverse impact
on BiomX’s reputation and brand.
BiomX’s
business and operations might be adversely affected by security breaches, including any cybersecurity incidents.
BiomX depends on the efficient and uninterrupted
operation of its computer and communications systems, and those of its consultants, contractors and vendors, which BiomX uses
for, among other things, sensitive company data, including its intellectual property, financial data and other proprietary business
information.
While certain of BiomX’s operations
have business continuity and disaster recovery plans and other security measures intended to prevent and minimize the impact of
IT-related interruptions, BiomX’s IT infrastructure and the IT infrastructure of its consultants, contractors and vendors
are vulnerable to damage from cyberattacks, computer viruses, unauthorized access, electrical failures and natural disasters or
other catastrophic events. BiomX could experience failures in its information systems and computer servers, which could result
in an interruption of its normal business operations and require substantial expenditure of financial and administrative resources
to remedy. System failures, accidents or security breaches can cause interruptions in BiomX’s operations and can result
in a material disruption of its targeted phage therapies, product candidates and other business operations. The loss of data from
completed or future studies or clinical trials could result in delays in BiomX’s research, development or regulatory approval
efforts and significantly increase BiomX’s costs to recover or reproduce the data. To the extent that any disruption or
security breach were to result in a loss of, or damage to, BiomX’s data or applications, or inappropriate disclosure of
confidential or proprietary information, BiomX could incur regulatory investigations and redresses, penalties and liabilities
and the development of its product candidates could be delayed or otherwise adversely affected.
Even though BiomX believes it carries
commercially reasonable business interruption and liability insurance, BiomX might suffer losses as a result of business interruptions
that exceed the coverage available under BiomX’s insurance policies or for which BiomX does not have coverage. For example,
BiomX is not insured against terrorist attacks or cyberattacks. Any natural disaster or catastrophic event could have a significant
negative impact on BiomX’s operations and financial results. Moreover, any such event could delay the development of BiomX’s
product candidates.
BiomX’s
employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improper activities,
including noncompliance with regulatory standards and requirements.
BiomX
is exposed to the risk of employee fraud or other illegal activity by its employees, independent contractors, consultants, commercial
partners and vendors. Misconduct by these parties could include intentional, reckless and/or negligent conduct that fails to comply
with the laws of the FDA and other similar foreign regulatory bodies, provide true, complete and accurate information to the FDA
and other similar foreign regulatory bodies, comply with manufacturing standards BiomX has established, comply with healthcare
fraud and abuse laws in the United States and similar foreign fraudulent misconduct laws or report financial information or data
accurately or to disclose unauthorized activities to BiomX. If BiomX obtains FDA approval of any of its product candidates and
begins commercializing those products in the United States, BiomX’s potential exposure under such laws will increase significantly,
and BiomX’s costs associated with compliance with such laws are also likely to increase. These laws may impact, among other
things, BiomX’s current activities with principal investigators and research patients, as well as proposed and future sales,
marketing and education programs.
BiomX’s relationships with healthcare providers,
physicians and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations,
which could expose BiomX to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits
and future earnings.
Healthcare providers, physicians and
third-party payors in the United States and elsewhere play a primary role in the recommendation and prescription of pharmaceutical
products. Arrangements with third-party payors and customers can expose pharmaceutical manufacturers to broadly applicable fraud
and abuse and other healthcare laws and regulations, including, without limitation, the federal Anti-Kickback Statute and the
federal False Claims Act (“FCA”) and foreign equivalent legislation, which may constrain the business or financial
arrangements and relationships through which such companies sell, market and distribute pharmaceutical products. In particular,
the promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare
industry, are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These
laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, structuring and commissions,
certain customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the
improper use of information obtained in the course of patient recruitment for clinical trials. The applicable federal, state and
foreign healthcare laws and regulations laws that may affect BiomX’s ability to operate include, but are not limited to:
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the
federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering
or paying any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash
or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation
of any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program,
such as the Medicare and Medicaid programs. A person or entity can be found guilty of violating the statute without actual
knowledge of the statute or specific intent to violate it. In addition, a claim including items or services resulting from
a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. The Anti-Kickback
Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers,
purchasers and formulary managers on the other hand. There are a number of statutory exceptions and regulatory safe harbors
protecting some common activities from prosecution;
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federal
civil and criminal false claims laws and civil monetary penalty laws, including the FCA, which prohibit, among other things,
individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment to,
or approval by Medicare, Medicaid or other federal healthcare programs, knowingly making, using or causing to be made or used
a false record or statement material to a false or fraudulent claim or an obligation to pay or transmit money to the federal
government, or knowingly concealing or knowingly and improperly avoiding or decreasing or concealing an obligation to pay
money to the federal government. Manufacturers can be held liable under the FCA even when they do not submit claims directly
to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The FCA also
permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government
alleging violations of the FCA and to share in any monetary recovery;
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HIPAA, which created
new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud
any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of
the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor
(e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material
fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items
or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity can be found
guilty of violating HIPAA without actual knowledge of the statute or specific intent to violate it;
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HIPAA, as amended by
HITECH and their respective implementing regulations, which impose, among other things, requirements on certain covered healthcare
providers, health plans and healthcare clearinghouses, as well as their respective business associates that perform services
for them that involve the use, or disclosure of, individually identifiable health information relating to the privacy, security
and transmission of individually identifiable health information without appropriate authorization. HITECH also created new
tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates
and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce
the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions;
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the
federal Physician Payment Sunshine Act, created under the Patient Protection and Affordable Care Act and its implementing
regulations, which require manufacturers of drugs, devices, biologicals and medical supplies for which payment is available
under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to
the United States Department of Health and Human Services information related to payments or other transfers of value made
to 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;
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federal
consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially
harm consumers;
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analogous
state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing
arrangements and claims involving healthcare items or services reimbursed by nongovernmental third-party payors, including
private insurers, and may be broader in scope than their federal equivalents; state and foreign laws that require pharmaceutical
companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance
promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers; state and foreign
laws that require drug manufacturers to report information related to payments and other transfers of value to physicians
and other healthcare providers or marketing expenditures; and state and foreign laws governing the privacy and security of
health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted
by HIPAA, thus complicating compliance efforts; and
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European
Union and other foreign provisions.
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The
distribution of pharmaceutical products is subject to additional requirements and regulations, including extensive recordkeeping,
licensing, storage, security requirements intended to prevent the unauthorized sale of pharmaceutical products and, in some foreign
countries, including the European Union countries, mandatory anti-counterfeit features.
The
scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare
reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently
increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations,
prosecutions, convictions and settlements in the healthcare industry. Ensuring business arrangements comply with applicable healthcare
laws, as well as responding to possible investigations by government authorities, can be time- and resource-consuming and can
divert a company’s attention from the business.
The failure to comply with any of these
laws or regulatory requirements could subject BiomX to possible legal or regulatory action. Depending on the circumstances, failure
to meet applicable regulatory requirements can result in civil, criminal and administrative penalties, damages, fines, disgorgement,
individual imprisonment, possible exclusion from participation in federal and state funded healthcare programs, contractual damages
and the curtailment or restricting of BiomX’s operations, as well as additional reporting obligations and oversight if BiomX
becomes subject to a corporate integrity agreement or other agreement to resolve allegations of noncompliance with these laws.
Any action for violation of these laws, even if successfully defended, could cause a pharmaceutical manufacturer to incur significant
legal expenses and divert management’s attention from the operation of the business. Prohibitions or restrictions on sales
or withdrawal of future marketed products could materially affect business in an adverse way.
The combined company will
be subject to a code of business conduct and ethics, but it is not always possible to identify and deter employee misconduct,
and the precautions the combined company takes to detect and prevent inappropriate conduct may not be effective in controlling
unknown or unmanaged risks or losses or in protecting it from governmental investigations or other actions or lawsuits stemming
from a failure to be in compliance with such laws or regulations. Efforts to ensure that the combined company’s business
arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that governmental and enforcement
authorities will conclude that the combined company’s business practices may not comply with current or future statutes,
regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If any such actions
are instituted against the combined company, and the combined company is not successful in defending itself or asserting its rights,
those actions could have a significant impact on its’s business, including the imposition of civil, criminal and administrative
penalties, damages, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal
healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of the combined
company’s operations, any of which could adversely affect its’s ability to operate its business and its results of
operations. In addition, the approval and commercialization of any of the combined company’s product candidates outside
the United States will also likely subject the combined company to foreign equivalents of the healthcare laws mentioned above,
among other foreign laws.
The
FDA and other equivalent foreign regulatory agencies may implement additional regulations or restrictions on the development and
commercialization of products which act on the microbiome, which may be difficult to predict.
The
FDA and equivalent foreign regulatory agencies in other countries have each expressed interest in further regulating biotechnology
products and product candidates, such as those that act on the human microbiome. Agencies at both the federal and state level
in the United States, as well as the U.S. congressional committees and other governments or governing agencies, have also expressed
interest in further regulating the biotechnology industry. Such action may delay or prevent commercialization of some or all of
BiomX’s product candidates. Adverse developments in non-IND human clinical studies or clinical trials of microbiome products
conducted by others may cause the FDA or other oversight bodies to change the requirements for approval of any of BiomX’s
product candidates. These regulatory review agencies and committees and the new requirements or guidelines they promulgate may
lengthen the regulatory review process, require BiomX to perform additional studies or trials, increase BiomX’s development
costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of BiomX’s
product candidates or lead to significant post-approval limitations or restrictions. As BiomX advances its product candidates,
BiomX will be required to consult with these regulatory agencies and comply with applicable requirements and guidelines. If BiomX
fails to do so, it may be required to delay or discontinue development of such product candidates. These additional processes
may result in a review and approval process that is longer than BiomX otherwise would have expected. Delays as a result of an
increased or lengthier regulatory approval process or further restrictions on the development of BiomX’s product candidates
can be costly and could negatively impact BiomX’s ability to complete clinical trials and commercialize BiomX’s current
and future product candidates in a timely manner if at all.
Exchange
rate fluctuations between the U.S. Dollar, the New Israeli Shekel, the Euro and other foreign currencies, may negatively affect
BiomX’s future revenues.
BiomX’s proceeds from sales of
its securities are generally received in U.S. Dollars. BiomX’s headquarters are located in Israel, where the majority of
BiomX’s general and administrative expenses and research and development costs are incurred in the New Israeli Shekel (the
“NIS”). Future expenses may be incurred in foreign currencies such as the Euro or British Pound. As a result, BiomX’s
financial results may be affected by fluctuations in the exchange rates of currencies in the countries. For example, during 2017,
BiomX witnessed a strengthening of the average exchange rate of the NIS against the U.S. Dollar, which increased the U.S. Dollar
value of Israeli expenses. If the NIS strengthens against the U.S. Dollar, as it did in 2017, the U.S. Dollar value of BiomX’s
Israeli expenses, mainly personnel and facility-related, will increase. To date, BiomX has not entered into any foreign currency
hedging contracts to mitigate its exposure to foreign currency exchange risk. Although exposure to currency fluctuations to date
has not had a material adverse effect on BiomX’s business, there can be no assurance that fluctuations in the future will
not have a material adverse effect on BiomX’s operating results and financial condition.
If
BiomX engages in future acquisitions or strategic partnerships, this may increase its capital requirements, dilute its stockholders,
cause it to incur debt or assume contingent liabilities, and subject it to other risks.
BiomX
may evaluate various acquisition opportunities and strategic partnerships, including licensing or acquiring complementary products,
intellectual property rights, technologies or businesses. Any potential acquisition or strategic partnership may entail numerous
risks, including:
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increased
operating expenses and cash requirements;
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the
assumption of additional indebtedness or contingent liabilities;
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the
issuance of BiomX’s equity securities;
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assimilation
of operations, intellectual property and products of an acquired company, including difficulties
associated with integrating new personnel;
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the
diversion of BiomX’s management’s attention from BiomX’s existing product
programs and initiatives in pursuing such a strategic merger or acquisition;
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retention
of key employees, the loss of key personnel and uncertainties in BiomX’s ability
to maintain key business relationships;
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risks
and uncertainties associated with the other party to such a transaction, including the
prospects of that party and their existing products or product candidates and marketing
approvals; and
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BiomX’s
inability to generate revenue from acquired technology and/or products sufficient to
meet its objectives in undertaking the acquisition or even to offset the associated acquisition
and maintenance costs.
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Risks
Related to Government Regulation
Breakthrough
Therapy Designation or Fast Track Designation by the FDA, even if granted for any of BiomX’s product candidates developed
for therapeutic indications, may not lead to a faster development, regulatory review or approval process, and it does not increase
the likelihood that any of BiomX’s product candidates will receive marketing approval in the United States.
In
the United States, BiomX may seek a Breakthrough Therapy Designation for some of its product candidates, including BX002 and/or
BX003. A breakthrough therapy is defined as a therapy that is intended, alone or in combination with one or more other therapies,
to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the therapy may
demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial
treatment effects observed early in clinical development. For therapies that have been designated as breakthrough therapies, interaction
and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development
while minimizing the number of patients placed in ineffective control regimens. Therapies designated as breakthrough therapies
by the FDA may also be eligible for priority review and accelerated approval. Designation as a breakthrough therapy is within
the discretion of the FDA.
In
the European Union, the PRIME (PRIority MEdicines) status is similar to the Breakthrough Therapy Designation. The EMA has implemented
the PRIME status to support the development and accelerate the approval of complex, innovative medicinal products addressing an
unmet medical need. The PRIME status enables early dialogue with the relevant EMA scientific committees and, possibly, some payors
and thus reinforces the EMA’s scientific and regulatory support. The PRIME status, which is granted at the EMA’s discretion,
focuses on medicinal products the marketing authorization of which qualifies for accelerated assessment (medicinal products of
major interest from a public health perspective, in particular from a therapeutic innovation perspective).
Accordingly,
even if BiomX believes one of its product candidates meets the criteria for designation as a breakthrough therapy or for PRIME
status, the FDA or EMA, respectively, may disagree and instead determine not to make such designation. In any event, the receipt
of a Breakthrough Therapy Designation or PRIME status for a product candidate may not actually result in a faster development
process, review or approval compared to therapies considered for approval under conventional procedures and does not assure ultimate
approval. In addition, even if one or more of BiomX’s product candidates qualify as breakthrough therapies or is granted
PRIME status, the FDA or EMA, respectively, may later decide that such product candidates no longer meet the conditions for qualification
or decide that the time period for review or approval will not be shortened.
In
the United States, BiomX may seek Fast Track Designation for some of its product candidates for therapeutic indications. If a
therapy is intended for the treatment of a serious or life-threatening condition and the therapy demonstrates the potential to
address unmet medical needs for this condition, the therapy sponsor may apply for Fast Track Designation. The FDA has broad discretion
whether or not to grant this designation, so even if BiomX believes a particular product candidate is eligible for this designation;
BiomX cannot assure you that the FDA would decide to grant it. Even if BiomX does receive Fast Track Designation, BiomX may not
experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw Fast
Track Designation if it believes that the designation is no longer supported by data from BiomX’s clinical development program.
Fast Track Designation alone does not guarantee qualification for the FDA’s priority review procedures.
Other
countries may have adopted schemes designed to ensure an accelerated approval of drugs that are especially important for patients.
For example, in the European Union, the EMA may agree to an accelerated assessment (150 days instead of 210 days) for medicinal
products of major interest from a public health perspective, in particular from a therapeutic innovation perspective). Furthermore,
competent regulatory authorities may grant market authorizations “under exceptional circumstances,” in cases where
all the required safety and efficacy data have not been and will not be collected, to medicinal products designed for unmet needs
or orphan medicinal products. Although a marketing authorization under exceptional circumstances is definitive, the risk-benefit
balance of the medicinal product must be reviewed annually and the marketing authorization is withdrawn if it becomes negative.
Moreover, under the centralized procedure, the European Commission may grant “conditional marketing authorizations”
in cases where all the required safety and efficacy data are not yet available. The conditional marketing authorization is subject
to conditions to be fulfilled for generating the missing data or ensuring increased safety measures. It is valid for one year
and has to be renewed annually until fulfillment of all the conditions. If the conditions are not fulfilled within the timeframe
set by the EMA, the marketing authorization ceases to be renewed. As with Fast Track Designation, the competent regulatory authorities
in the European Union have broad discretion whether or not to grant such an accelerated assessment or approval and, even if such
assessment or approval is granted, BiomX may not experience a faster development process, review or approval compared to conventional
procedures.
BiomX
may seek a priority review designation for one or more of its other product candidates for therapeutic indications, but BiomX
might not receive such designation, and even if it does, such designation may not lead to a faster development or regulatory review
or approval process.
If
the FDA determines that a product candidate offers a treatment for a serious condition and, if approved, the product would provide
a significant improvement in safety or effectiveness, the FDA may designate the product candidate for priority review. A priority
review designation means that the goal for the FDA to review an application is six months, rather than the standard review period
of ten months. BiomX may request priority review for BiomX’s product candidates. The FDA has broad discretion with respect
to whether or not to grant priority review status to a product candidate, so even if BiomX believe a particular product candidate
is eligible for such designation or status, the FDA may decide not to grant it. Moreover, a priority review designation does not
necessarily result in an expedited regulatory review or approval process or necessarily confer any advantage with respect to approval
compared to conventional FDA procedures. Receiving priority review from the FDA does not guarantee approval within the six-month
review cycle or at all.
BiomX
may fail to obtain and maintain orphan drug designations from the FDA or equivalent foreign regulatory agencies for BiomX’s
current and future therapeutic product candidates, as applicable.
BiomX’s
strategy may include filing for the orphan drug designation where available for BiomX’s product candidates for therapeutic
indications. BiomX currently believes that BX003 may qualify for such a designation in the United States, the European Union,
and the other countries supporting the development and marketing of drugs for rare diseases.
In the United States, under the Orphan Drug
Act, the FDA may grant orphan drug designation to a drug or biologic intended to treat a rare disease or condition, which is defined
as one occurring in a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000
in the United States where there is no reasonable expectation that the cost of developing the drug or biologic will be recovered
from sales in the United States. In the United States, the orphan drug designation entitles a party to financial incentives, such
as opportunities for grant funding toward clinical trial costs, tax advantages and user-fee waivers. In addition, if a product
that has the orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation,
the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications, including
an NDA, to market the same drug or biologic for the same indication for seven years, except in limited circumstances, such as a
showing of clinical superiority to the product with orphan drug exclusivity or where the original manufacturer is unable to assure
sufficient product quantity.
In
addition, exclusive marketing rights in the United States may be limited if BiomX seeks approval for an indication broader than
the orphan-designated indication or may be lost if the FDA later determines that the request for designation was materially defective,
or if BiomX is unable to assure sufficient quantities of the product to meet the needs of patients with the orphan-designated
disease or condition. Further, even if BiomX obtains orphan drug exclusivity for a product, that exclusivity may not effectively
protect the product from competition because different drugs with different active moieties may receive and be approved for the
same condition, and only the first applicant to receive approval will receive the benefits of marketing exclusivity. Even after
an orphan-designated product is approved, the FDA can subsequently approve a later drug with the same active moiety for the same
condition if the FDA concludes that the later drug is clinically superior if it is shown to be safer, more effective or makes
a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time
of a drug nor gives the drug any advantage in the regulatory review or approval process. In addition, while BiomX may seek the
orphan drug designation for its product candidates, BiomX may never receive such designation.
An
orphan drug legal regime also exists in the European Union. The EMA’s Committee for Orphan Medicinal Products (“COMP”)
gives opinions, and the European Commission takes decisions, on the granting of the orphan drug designation to the development
of products that are intended for the diagnosis, prevention or treatment of (i) a life-threatening or chronically debilitating
condition affecting not more than five in 10,000 persons in the European Economic Area (European Union plus Iceland, Liechtenstein
and Norway); or (ii) a life-threatening, seriously debilitating or serious and chronic condition when, without incentives, it
is unlikely that sales of the drug in the European Economic Area would be sufficient to justify the necessary investment in developing
the drug or biological product. The granting of the orphan designation requires that there is no satisfactory method of diagnosis,
prevention or treatment, or, if such a method exists, that the future medicine is to be of significant benefit to those affected
by the condition. The test for that later condition is stringent, because the future product must be compared with all existing
therapies for the rare condition, including surgical operations, already authorized medicinal products and compounded preparations
(subject to certain conditions). At the time of marketing authorization, the orphan designation is reviewed again by the COMP
in view of the maintenance of the orphan status. If the designation criteria are no longer met, the European Commission withdraws
the orphan designation. Maintenance of the orphan designation at the time of marketing authorization means that all the drugs/biologicals
authorized since the granting of the designation become relevant for determining the lack of satisfactory therapy or the significant
benefit.
The
orphan drug designation entitles the company to financial incentives, such as reductions of fees or fee waivers and 10 years of
market exclusivity. Market exclusivity precludes the EMA or the national competent authorities from validating a marketing authorization
application (“MAA”), and the European Commission or a national competent authority from granting a marketing authorization,
for a same or similar drug/biological and the same therapeutic indication. The 10-year period may be reduced to six years if the
orphan designation criteria are no longer met, including where it is shown that the product is not sufficiently profitable to
justify maintenance of market exclusivity. The orphan exclusivity may also be lost vis-à-vis another drug/biological in
cases where the manufacturer is unable to assure sufficient quantity of the drug to meet patient needs or if that other product
is proved to be clinically superior to the approved orphan product. A drug/biological is clinically superior if it is safer, more
effective or makes a major contribution to patient care.
Even
if BiomX receives regulatory approval of any product candidates for therapeutic indications, BiomX will be subject to ongoing
regulatory compliance obligations and continued regulatory review, which may result in significant additional expense. Additionally,
any of BiomX’s product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal,
and BiomX may be subject to penalties if BiomX fails to comply with regulatory requirements or experience unanticipated problems
with its product candidates.
If
any of BiomX’s product candidates is approved for therapeutic indications, it will be subject to ongoing regulatory requirements
for manufacturing, labeling, packaging, storage, distribution, advertising, promotion, sampling, recordkeeping, export, import,
conduct of post-marketing studies and submission of safety, efficacy and other post-market information, including both federal
and state requirements in the United States and requirements of equivalent foreign regulatory agencies. In addition, BiomX will
be subject to continued compliance with cGMP and GCP requirements for any clinical trials that BiomX conducts post-approval.
Manufacturers
and manufacturers’ facilities are required to comply with extensive FDA and equivalent foreign regulatory agency requirements,
including ensuring that quality control and manufacturing procedures conform to cGMP regulations. As such, BiomX and its contract
manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments
made in any NDA, other marketing applications and previous responses to inspection observations. Accordingly, BiomX and others
with whom BiomX work must continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing,
production and quality control.
The
FDA or equivalent foreign regulatory agencies have significant post-marketing authority, including, for example, the authority
to require labeling changes based on new safety information and to require post-marketing studies or clinical trials to evaluate
serious safety risks related to the use of a drug. Any regulatory approvals that BiomX receives for its product candidates may
be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval,
or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials and surveillance to monitor
the safety and efficacy of the product candidate. The FDA or equivalent foreign regulatory agencies may also require a REMS program
as a condition of approval of BiomX’s product candidates, which could entail requirements for long-term patient follow-up,
a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods,
patient registries and other risk minimization tools. In addition, if the FDA or an equivalent foreign regulatory agency approves
BiomX’s product candidates, BiomX will have to comply with requirements, including submissions of safety and other post-marketing
information and reports and registration.
The
FDA or equivalent foreign regulatory agencies may impose consent decrees or withdraw approval if compliance with regulatory requirements
and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown
problems with BiomX’s product candidates, including adverse events of unanticipated severity or frequency, or with BiomX’s
third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements may result in revisions
to the approved labeling to add new safety information, the imposition of post-market studies or clinical trials to assess new
safety risks, or the imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences
include, among other things:
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restrictions
on the marketing or manufacturing of BiomX’s products, withdrawal of products from the market, or voluntary or mandatory
product recalls;
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fines,
warning or untitled enforcement letters, or holds on clinical trials;
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refusal
by the FDA or equivalent foreign regulatory agencies to approve pending applications or supplements to approved applications
filed by BiomX or the suspension or revocation of license approvals;
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product
seizure or detention or refusal to permit the import or export of BiomX’s product candidates; and
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injunctions
or the imposition of civil or criminal penalties.
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The
FDA or equivalent foreign regulatory agencies strictly regulate the marketing, labeling, advertising and promotion of drug products
that are placed on the market. Products may be promoted only for the approved indications and in accordance with the provisions
of the approved label or other regulatory marketing pathway. The FDA and equivalent foreign regulatory agencies actively enforce
the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted
off-label uses may be subject to significant liability. The policies of the FDA or equivalent foreign regulatory agencies may
change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of BiomX’s
product candidates. If BiomX is slow or unable to adapt to changes in existing requirements or the adoption of new requirements
or policies, or if BiomX are not able to maintain regulatory compliance, BiomX may lose any marketing approval that BiomX may
have obtained, which would adversely affect BiomX’s business, prospects and the ability to achieve or sustain profitability.
The
policies of the FDA or equivalent foreign regulatory agencies may change, and additional government regulations may be enacted
that could prevent, limit or delay regulatory approval of BiomX’s product candidates. BiomX also cannot predict the likelihood,
nature or extent of government regulation that may arise from future legislation or administrative or executive action, either
in the United States or abroad. For example, certain policies of the current administration may impact BiomX’s business
and industry. Namely, the current administration has taken several executive actions, including the issuance of a number of executive
orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine
regulatory and oversight activities, such as implementing statutes through rulemaking, the issuance of guidance, and the review
and approval of marketing applications. It is difficult to predict how these executive actions, including any executive orders,
will be implemented and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If
these executive actions impose constraints on the FDA’s ability to engage in oversight and implementation activities in
the normal course, BiomX’s business may be negatively impacted. In addition, if BiomX is slow or unable to adapt to changes
in existing requirements or the adoption of new requirements or policies, or if BiomX are not able to maintain regulatory compliance,
BiomX may lose any marketing approval that BiomX may have obtained, and BiomX may not achieve or sustain profitability.
Noncompliance
by BiomX or any future collaborator with regulatory requirements, including safety monitoring or pharmacovigilance requirements,
can also result in significant financial penalties.
BiomX
may conduct clinical trials for its product candidates outside the United States, and the FDA may not accept data from such trials.
Although
the FDA may accept data from clinical trials conducted outside the United States, acceptance of such study data by the FDA is
subject to certain conditions. For example, the study must be well designed and conducted and performed by qualified investigators
in accordance with ethical principles. The study population must also adequately represent the United States population, and the
data must be applicable to the United States population and United States medical practice in ways that the FDA deems clinically
meaningful. Generally, the patient population for any clinical studies conducted outside of the United States must be representative
of the population for whom BiomX intends to label the product in the United States. In addition, such studies would be subject
to the applicable local laws, and FDA acceptance of the data would be dependent upon its determination that the studies also complied
with all applicable United States laws and regulations. There can be no assurance the FDA will accept data from trials conducted
outside of the United States. If the FDA does not accept any such data, it would likely result in the need for additional trials,
which would be costly and time-consuming and may delay aspects of BiomX’s business plan.
Any
products that BiomX may develop may become subject to unfavorable pricing regulations, third-party reimbursement practices or
health care reform initiatives, which could make it difficult for BiomX to sell any product candidates or therapies profitably.
The
regulations that govern pricing for new medical products vary widely from country to country. As a result, BiomX might obtain
regulatory approval for a product in a particular country but then be subject to pricing regulations in that country that delay
the commercial launch of the product and negatively impact the revenue BiomX is able to generate from the sale of the product
in that country. In addition, BiomX’s ability to commercialize any approved products successfully will depend in part on
the extent to which reimbursement for these products will be available from government health administration authorities, private
health insurers and other organizations. Even if BiomX succeeds in bringing one or more therapeutic products to market, these
products may not be considered cost-effective, and the amount reimbursed for any products may be insufficient to allow BiomX to
sell them on a competitive basis. If the price BiomX is able to charge for therapeutic products is inadequate in light of BiomX’s
development and other costs, BiomX’s future profitability could be adversely affected.
Ongoing
health care legislative and regulatory reform measures may have a material adverse effect on BiomX’s business and results
of operations.
Changes
in regulations, statutes or the interpretation of existing regulations could impact BiomX’s business in the future by requiring,
for example, (i) changes to BiomX’s manufacturing arrangements, (ii) additions or modifications to product labeling,
(iii) the recall or discontinuation of BiomX’s products, or (iv) additional record-keeping requirements. If any
such changes were to be imposed, they could adversely affect the operation of BiomX’s business.
In
the United States, there have been and continue to be a number of legislative initiatives to contain health care costs. For example,
in March 2010, the Patient Protection and Affordable Care Act (the “ACA”), was passed, which substantially changed
the way health care is financed by both governmental and private insurers and significantly impacted the United States pharmaceutical
industry. The ACA, among other things, subjects biological products to potential competition by lower-cost biosimilars; addresses
a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that
are inhaled, infused, instilled, implanted or injected; increases the minimum Medicaid rebates owed by manufacturers under the
Medicaid Drug Rebate Program; and extends the rebate program to individuals enrolled in Medicaid managed care organizations. It
also establishes annual fees and taxes on manufacturers of certain branded prescription drugs and creates a new Medicare Part
D coverage gap discount program in which manufacturers must agree to offer 50% point of sale discounts off negotiated prices of
applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturer’s
outpatient drugs to be covered under Medicare Part D.
Some
of the provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional
challenges, as well as efforts by the current administration to repeal or replace certain aspects of the ACA.
These
laws and future state and federal health care reform measures may be adopted in the future, any of which may result in additional
reductions in Medicare and other health care funding and otherwise affect the prices BiomX may obtain for any of its product candidates
for which it may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used.
A
similar movement is observed in the European Union countries. Criteria for pricing and reimbursement, which vary from country
to country, are regularly amended and tightened in order to reduce the draw on the budget allocated to national health insurance
systems. Moreover, the system of reference pricing (the price in a country calculated on the basis of prices in other countries
with typically lower prices) leads to price reductions in countries that traditionally granted high prices.
BiomX
is subject to certain U.S. and foreign anticorruption, anti-money laundering, export control, sanctions and other trade laws and
regulations. BiomX can face serious consequences for violations.
Among
other matters, U.S. and foreign anticorruption, anti-money laundering, export control, sanctions and other trade laws and regulations,
which are collectively referred to as Trade Laws, prohibit companies and their employees, agents, clinical research organizations,
legal counsel, accountants, consultants, contractors and other partners from authorizing, promising, offering, providing, soliciting
or receiving, directly or indirectly, corrupt or improper payments or anything else of value to or from recipients in the public
or private sector. Violations of Trade Laws can result in substantial criminal fines and civil penalties, imprisonment, the loss
of trade privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences.
BiomX has direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals,
universities and other organizations. BiomX also expects its non-U.S. activities to increase over time. BiomX plans to engage
third parties for clinical trials and/or to obtain necessary permits, licenses, patent registrations and other regulatory approvals,
and BiomX can be held liable for the corrupt or other illegal activities of BiomX’s personnel, agents or partners, even
if BiomX does not explicitly authorize or have prior knowledge of such activities.
Risks
Related to BiomX’s Licensed and Co-Owned Intellectual Property
The license agreements BiomX maintains, including the
Research and License Agreement (the “License Agreement”) dated as of June 22, 2015 with Yeda Research and Development
Company Limited (“Yeda”), are important to BiomX’s business. If BiomX or the other parties to its license agreements
fail to adequately perform under the license agreements, or if BiomX or they terminate the license agreements, the development,
testing, manufacture, production and sale of BiomX’s microbiome-based therapeutic product candidates would be delayed or
terminated, and BiomX’s business would be adversely affected.
Yeda undertakes to procure certain research
and development activities under the License Agreement, including the proof-of-concept studies testing in vivo phage eradication
against a model bacteria in germ-free mice, development of an IBD model in animals under germ-free conditions and establishing
in vivo method for measuring immune induction capability (Th1) of bacteria, followed by testing several candidate IBD-inducing
bacterial strains, during the research period, subject to the terms and conditions specified in the License Agreement. The License
Agreement with Yeda provides for an exclusive worldwide license to certain know-how and research information related to the development,
testing, manufacture, production and sale of microbiome-based therapeutic product candidates, including candidates specified in
the agreement, which are used in BiomX’s phage discovery platform, as well as patents, research and other rights to phage
product candidates resulting from the work of the consultants identified in the agreement and further research that BiomX funded.
The License Agreement terminates upon the later of the expiration of the last of the patents covered under the License Agreement
and the expiry of a continuous 15-year period during which there has not been a first commercial sale of any product in any country.
Yeda may also terminate the agreement if BiomX fails to observe certain diligence and development requirements and milestones
as described in the License Agreement. BiomX or Yeda may terminate the agreement for the material uncured breach of the other
party after a notice period or the other party’s winding up, bankruptcy, insolvency, dissolution or other similar discontinuation
of business. Upon termination of the agreement, other than due to the passage of time, BiomX is required to grant to Yeda a nonexclusive,
irrevocable, perpetual, fully paid-up, sublicensable, worldwide license in respect of BiomX’s rights in know-how and research
results as described in the License Agreement, provided that, if Yeda subsequently grants a license to a third party that utilizes
BiomX’s rights, BiomX is entitled to share in the net proceeds actually received by Yeda arising out of that license, subject
to a cap based on the development expenses that BiomX incur in connection with the License Agreement.
BiomX also maintains additional license
agreements:
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with the Massachusetts Institute of Technology (“MIT”), pursuant to which BiomX received an exclusive, royalty-bearing license to certain patents held by MIT covering methods to synthetically engineer phages in the field of treating, preventing or diagnosing inflammatory bowel disease, cancer in humans, or certain other specified indications or specific bacterial targets to utilize patents held by MIT;
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with Keio University (“Keio”)
and JSR Corporation (“JSR”), pursuant to which BiomX was granted an exclusive, royalty-bearing, worldwide, perpetual
sublicense by JSR to certain patent rights related to BiomX’s inflammatory bowel disease program. Specifically, these
patent rights relate to bacterial targets that have been observed to be related to inflammatory bowel disease and the phages
that were observed to eradicate these bacterial targets; and
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with Keio and JSR, pursuant to which BiomX was granted an exclusive, royalty-bearing, worldwide, perpetual sublicense
by JSR to certain patent rights related to BiomX’s primary sclerosing cholangitis (“PSC”) program. Specifically,
these patent rights relate to bacterial targets that have been observed to be related to PSC and the phages that were observed
to eradicate these bacterial targets.
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Termination of the license agreements could
cause significant delays in BiomX’s product and commercialization efforts that could prevent BiomX from commercializing its
product candidates, including its microbiome-based therapeutic product candidates, without first expanding its internal capabilities
or entering into other agreements with third parties. Any alternative collaboration or license could also be on less favorable
terms to BiomX.
BiomX
is highly dependent on intellectual property licensed from third parties, and termination or limitation of any of these licenses
could result in the loss of significant rights and materially harm BiomX’s business.
BiomX currently relies on licenses from third-party
collaborators for certain aspects of BiomX’s technology and for certain of BiomX’s existing programs. In particular,
BiomX received exclusive, royalty-bearing licenses to certain patents held by third parties, including Yeda, MIT, Keio and JSR.
BiomX’s license agreement with Yeda provides license to certain know-how and research information related to the development,
testing, manufacture, production and sale of microbiome-based therapeutic product candidates that are used in BiomX’s phage
discovery platform, as well as patents, research and other rights to phage product candidates resulting from the work of the consultants
identified in the agreement and further research that BiomX funded. BiomX’s license agreements with MIT, Keio and JSR provide licenses to patents related to, among other things, synthetic biology and BiomX’s inflammatory bowel disease, primary
sclerosing cholangitis and PSC programs. Pursuant to these license agreements, BiomX is required to pay annual license fees, as
well as a contingent consideration comprised of milestone and royalty payments, which depend on the achievement of future milestones
and potential revenue from products. More information on BiomX’s license agreements, see “BiomX Ltd.’s Business—Material
Agreements.”
If BiomX fails to comply with its obligations
under its license agreements, including payment terms, BiomX’s licensors may have the right to terminate BiomX’s license
agreements, in which event BiomX may not be able to develop, manufacture, market or sell the products covered by those license
agreements. BiomX may also face other penalties under its license agreements if it does not meet its contractual obligations. Such
an occurrence could materially adversely affect the value of the BiomX products being developed under any such license agreements.
Termination of one or more of BiomX’s license agreements, or reduction or elimination of BiomX’s rights under these
license agreements, may result in BiomX having to negotiate new or reinstated license agreements, which may not be available to
BiomX on equally favorable terms, or at all, which may mean BiomX is unable to commercialize the affected product candidates.
In
the future, BiomX may rely upon additional licenses to certain patent rights and proprietary technology from third parties that
are important or necessary to the development of BiomX’s product candidates and proprietary product platform. Patent rights
that BiomX in-licenses in the future may be subject to a reservation of rights by one or more third parties. As a result, any
such third party may have certain rights to such intellectual property.
In
addition, subject to the terms of any such license agreements, BiomX may not have the right to control the preparation, filing,
prosecution and maintenance, and BiomX may not have the right to control the enforcement and defense, of patents and patent applications
covering the technology that BiomX license from third parties. BiomX cannot be certain that its in-licensed patent applications
(and any patents issuing therefrom) that are controlled by its licensors will be prepared, filed, prosecuted, maintained, enforced
and defended in a manner consistent with the best interests of its business. If BiomX’s licensors fail to prosecute, maintain,
enforce and defend such patents rights, or lose rights to those patent applications (or any patents issuing therefrom), the rights
BiomX has licensed may be reduced or eliminated, BiomX’s right to develop and commercialize any of its product candidates
and proprietary product platform technology that are subject of such licensed rights could be adversely affected, and BiomX may
not be able to prevent competitors from making, using and selling competing products. Moreover, BiomX cannot be certain that such
activities by its potential future licensors will be conducted in compliance with applicable laws and regulations or will result
in valid and enforceable patents or other intellectual property rights. In addition, even where BiomX may have the right to control
the prosecution of patents and patent applications that BiomX may license to and from third parties, BiomX may still be adversely
affected or prejudiced by actions or inactions of BiomX’s potential future licensees, licensors and their counsel that took
place prior to the date of assumption of control over patent prosecution.
The
patent position of biopharmaceutical companies, including BiomX and its licensors, is generally uncertain and involves complex
legal and factual considerations and, therefore, validity and enforceability cannot be predicted with certainty. BiomX’s
licensed and co-owned intellectual property may be challenged, deemed unenforceable, invalidated or circumvented. BiomX and its
licensors will be able to protect their intellectual property rights from unauthorized use by third parties only to the extent
that these rights (and the products and services they cover) are protected by valid and enforceable patents, copyrights or trademarks,
or are effectively maintained as trade secrets.
Any patents obtained by BiomX’s licensors
or BiomX, may be challenged by re-examination or otherwise invalidated or eventually found unenforceable. Both the patent application
process and the process of managing patent disputes can be time consuming and expensive. If BiomX or one of its licensors was to
initiate legal proceedings against a third party to enforce a patent relating to one of its products, the defendant in such litigation
could counterclaim that the asserted patents are invalid and/or unenforceable. In patent litigation in the U.S., defendant counterclaims
alleging invalidity or unenforceability are common, as are validity challenges by the defendant against the subject patent or related
patents before the United States Patent and Trademark Office (“USPTO”). Grounds for a validity challenge could be an
alleged failure to meet any of several statutory patentability requirements, including lack of novelty, obviousness, non-enablement,
failure to meet the written description requirement, indefiniteness, and/or failure to claim patentable subject matter. Grounds
for an unenforceability assertion could be an allegation that someone connected to prosecution of the patent/s at issue intentionally
withheld material information from the USPTO or made a misleading statement during prosecution. Additional grounds for an unenforceability
assertion include an allegation of misuse or anticompetitive use of patent rights, and an allegation of incorrect inventorship
with deceptive intent. Third parties may also raise similar claims before the USPTO, even outside the context of litigation. The
outcome of any assertion of invalidty and/or unenforceability is unpredictable. If a defendant or third party were to prevail on
a legal assertion of invalidity and/or unenforceability, BiomX and its licensors would lose at least part, and perhaps all, of
the claims of the challenged patent/s. Such a loss of patent protection could have a material adverse impact on BiomX’s business.
BiomX
is dependent on patents and proprietary technology. If BiomX fails to adequately protect this intellectual property or if BiomX
otherwise does not have exclusivity for the marketing of its products, BiomX’s ability to commercialize products could suffer.
BiomX’s
commercial success will depend in part on BiomX’s ability to obtain and maintain patent protection sufficient to prevent
others from marketing BiomX’s product candidates, as well as to defend and enforce these patents against infringement and
to operate without infringing the proprietary rights of others. Protection of BiomX’s product candidates from unauthorized
use by third parties will depend on having valid and enforceable patents that cover BiomX’s product candidates or their
manufacture or use or on having effective trade secret protection. If BiomX’s patent applications do not result in issued
patents or if BiomX’s patents are found to be invalid, BiomX will lose the ability to exclude others from making, using
or selling the inventions claimed therein. BiomX has a limited number of patents and pending patent applications.
The
patent positions of biotechnology companies can be uncertain and involve complex legal and factual questions. This is due to inconsistent
application of policies and changes in policy relating to the examination and enforcement of biotechnology patents to date on
a global scale. The laws of some countries may not protect intellectual property rights to the same extent as the laws of countries
having well-established patent systems, and those countries may lack adequate rules and procedures for defending BiomX’s
intellectual property rights. Also, changes in either patent laws or in the interpretations of patent laws may diminish the value
of BiomX’s intellectual property. BiomX is not able to guarantee that all of its patent applications will result in the
issuance of patents, and BiomX cannot predict the breadth of claims that may be allowed in BiomX’s patent applications or
in the patent applications BiomX may license from others.
Central
provisions of The Leahy-Smith America Invents Act, or the America Invents Act, went into effect on September 16, 2012 and on March
16, 2013. The America Invents Act includes a number of significant changes to U.S. patent law. These changes include provisions
that affect the way patent applications are being filed, prosecuted and litigated. For example, the America Invents Act enacted
proceedings involving post-issuance patent review procedures, such as inter partes review, or IPR, and post-grant review, that
allow third parties to challenge the validity of an issued patent in front of the USPTO Patent Trial and Appeal Board. Each proceeding has different eligibility criteria and different patentability challenges that
can be raised. IPRs permit any person (except a party who has been litigating the patent for more than a year) to challenge the
validity of the patent on the grounds that it was anticipated or made obvious by prior art. Patents covering pharmaceutical products
have been subject to attack in IPRs from generic drug companies and from hedge funds. If it is within nine months of the issuance
of the challenged patent, a third party can petition the USPTO for post-grant review, which can be based on any invalidity grounds
and is not limited to prior art patents or printed publications.
In
post-issuance proceedings, USPTO rules and regulations generally tend to favor patent challengers over patent owners. For example,
unlike in district court litigation, claims challenged in post-issuance proceedings are given their broadest reasonable meaning,
which increases the chance a claim might be invalidated by prior art or lack support in the patent specification. As another example,
unlike in district court litigation, there is no presumption of validity for an issued patent, and thus a challenger’s burden
to prove invalidity is by a preponderance of the evidence, as opposed to the heightened clear and convincing evidence standard.
As a result of these rules and others, statistics released by the USPTO show a high percentage of claims being invalidated in
post-issuance proceedings. Moreover, with few exceptions, there is no standing requirement to petition the USPTO for inter partes
review or post-grant review. In other words, companies that have not been charged with infringement or that lack commercial interest
in the patented subject matter can still petition the USPTO for review of an issued patent. Thus, even where BiomX has issued
patents, BiomX’s rights under those patents may be challenged and ultimately not provide BiomX with sufficient protection
against competitive products or processes.
The
degree of future protection for BiomX’s proprietary rights is uncertain, because legal means afford only limited protection
and may not adequately protect BiomX’s rights or permit BiomX to gain or keep its competitive advantage. For example:
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BiomX
might not be the first to file patent applications for its inventions;
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others
may independently develop similar or alternative product candidates to any of BiomX’s product candidates that fall outside
the scope of BiomX’s patents;
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BiomX’s
pending patent applications may not result in issued patents;
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BiomX’s
issued patents may not provide a basis for commercially viable products or may not provide it with any competitive advantages
or may be challenged by third parties;
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others
may design around BiomX’s patent claims to produce competitive products that fall outside the scope of its patents;
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BiomX
may not develop additional patentable proprietary technology related to its product candidates; and
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BiomX
is dependent upon the diligence of its appointed agents in national jurisdictions, acting for and on BiomX’s behalf,
which control the prosecution of pending domestic and foreign patent applications and maintain granted domestic and foreign
patents.
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An
issued patent does not guarantee BiomX the right to practice the patented technology or commercialize the patented product. Third
parties may have blocking patents that could be used to prevent BiomX from commercializing its patented products and practicing
BiomX’s patented technology. BiomX’s issued patents and those that may be issued in the future may be challenged,
invalidated or circumvented, which could limit BiomX’s ability to prevent competitors from marketing the same or related
product candidates or could limit the length of the term of patent protection of BiomX’s product candidates. Moreover, because
of the extensive time required for development, testing and regulatory review of a potential product, it is possible that, before
any of BiomX’s product candidates can be commercialized, any related patent may expire or remain in force for only a short
period following commercialization, thereby reducing any advantage of the patent. Patent term extensions may not be available
for these patents.
BiomX’s
rights to develop and commercialize its product candidates and proprietary product platform may be subject, in part, to the terms
and conditions of current and future licenses granted to BiomX by others.
Some
of BiomX’s licensed rights could provide BiomX with freedom to operate for aspects of BiomX’s products and services.
BiomX may need to obtain additional licenses from others to advance its research, development and commercialization activities.
Disputes may arise between BiomX and its
licensors regarding intellectual property subject to a license agreement, including:
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the
scope of rights granted under the license agreement and other interpretation-related issues;
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whether,
and the extent to which, BiomX’s products, services, technology and processes infringe on the intellectual property
of the licensor that is not subject to the license agreement;
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BiomX’s
right to sublicense patent and other rights to third parties under collaborative development relationships;
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BiomX’s
diligence obligations under the license agreement and what activities satisfy those diligence obligations;
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the
inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property
by BiomX’s licensors and BiomX and its collaborators; and
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the
priority of invention of patented technology.
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If BiomX does not
prevail in such disputes, BiomX may lose any or all of its rights under such license agreements.
In
addition, the agreements under which BiomX currently licenses intellectual property or technology from third parties are complex,
and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation
disagreement that may arise could narrow what BiomX believes to be the scope of its rights to the relevant intellectual property
or technology or could increase what BiomX believes to be its financial or other obligations under the relevant agreement, either
of which could have a material adverse effect on BiomX’s business, financial condition, results of operations and prospects.
Moreover, if disputes over intellectual property that BiomX has licensed prevent or impair BiomX’s ability to maintain its
current licensing arrangements on commercially acceptable terms, BiomX may be unable to successfully develop and commercialize
any affected products or services, which could have a material adverse effect on BiomX’s business, financial conditions,
results of operations and prospects.
Absent
the license agreements, BiomX may infringe patents subject to those agreements, and, if the license agreements are terminated,
BiomX may be subject to litigation by the licensor. Litigation could result in substantial costs to BiomX and distract BiomX’s
management. If BiomX does not prevail, it may be required to pay damages, including treble damages, attorneys’ fees, costs
and expenses, and royalties. BiomX may also be enjoined from selling its products or services, which could adversely affect its
ability to offer products or services, its ability to continue operations, and its financial condition.
If
BiomX infringes the rights of third parties, it could be prevented from selling products, forced to pay damages and/or royalties,
and forced to defend against litigation.
BiomX
does not believe that the products it is currently developing infringe upon the rights of any third parties or are infringed upon
by third parties. However, there can be no assurance that our technology will not be found in the future to infringe upon the
rights of others or be infringed upon by others. Moreover, patent applications are in some cases maintained in secrecy until patents
are issued. The publication of discoveries in the scientific or patent literature frequently occurs much later than the date on
which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there
may be currently pending applications of which BiomX is unaware that may later result in issued patents that BiomX products or
product candidates infringe. For example, pending patent applications may exist that provide support or can be amended to provide
support for a claim that results in an issued patent that is infringed by one or more BiomX products. In such a case, others may
assert infringement claims against BiomX, and should BiomX be found to infringe these patents or impermissibly use their intellectual
property, BiomX might be forced to pay damages, potentially including treble damages, if BiomX is found to have willfully infringed
on such third parties’ patent rights.
In
addition to any damages BiomX might have to pay, BiomX may also be required to obtain licenses from the holders of this intellectual
property, enter into royalty agreements, or redesign its products so as not to use this intellectual property. Each of these penalties
may prove to be uneconomical or otherwise impossible. BiomX may fail to obtain any such licenses or intellectual property rights
on commercially reasonable terms. Even if BiomX is able to obtain a license, it may be non-exclusive, thereby giving BiomX’s
competitors access to the same licensed technologies. In that event, BiomX may be required to spend significant time and resources
to develop or license replacement technologies. If BiomX is unable to do so, BiomX may be unable to develop or commercialize the
affected products, which could materially harm our business. Conversely, BiomX may not be able to pursue claims against third
parties that infringe on BiomX’s licensed or co-owned technology. Thus, BiomX’s licensed and co-owned technology may
not provide adequate protection against competitors.
The
pharmaceutical industry is characterized by extensive litigation regarding patents and other intellectual property rights. Moreover,
the cost to BiomX of any litigation or other proceeding relating to its licensed and/or co-owned intellectual property rights,
even if resolved in BiomX’s favor, could be substantial. Any such litigation would divert BiomX’s management efforts,
and BiomX may not have sufficient resources to bring any such action to a successful conclusion. Uncertainties resulting from
the initiation and continuation of any litigation could limit BiomX’s ability to continue operations.
Additionally,
because BiomX’s pipeline may involve additional development candidates that could require the use of proprietary rights
held by third parties, the growth of BiomX’s business could depend in part on BiomX’s ability to acquire, in-license or
use these proprietary rights. In addition, BiomX’s development candidates may require specific formulations to work effectively
and efficiently and these rights may be held by others. BiomX may be unable to acquire or in-license any compositions,
methods of use, processes or other third-party intellectual property rights from third parties that BiomX identifies. The licensing
and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies
are also pursuing strategies to license or acquire third-party intellectual property rights that BiomX may consider attractive.
These established companies may have a competitive advantage over BiomX due to their size, cash resources, and greater clinical
development and commercialization capabilities.
For
example, BiomX sometimes collaborates with U.S. and foreign academic institutions to accelerate its preclinical research or development
under written agreements with these institutions. Typically, these institutions provide BiomX with an option to negotiate a license
to any of the institution’s rights in technology resulting from the collaboration. Regardless of such right of first negotiation
for intellectual property, BiomX may be unable to negotiate a license within the specified time frame or under terms that are
acceptable to it. If BiomX is unable to do so, the institution may offer the intellectual property rights to other parties, potentially
blocking BiomX’s ability to pursue its program.
In
addition, companies that perceive BiomX to be a competitor may be unwilling to assign or license rights to BiomX. BiomX also may
be unable to license or acquire third-party intellectual property rights on terms that would allow BiomX to make an appropriate
return on its investment. If BiomX is unable to successfully obtain rights to required third-party intellectual property rights,
BiomX’s business, financial condition and prospects for growth could suffer.
BiomX
may not be successful in obtaining, through acquisitions, in-licenses or otherwise, necessary rights to its product
candidates, proprietary product platform technologies or other technologies.
BiomX
currently has rights to certain intellectual property, through licenses from third parties, to develop BiomX’s product candidates
and proprietary product platform technologies. Some health care companies and academic institutions are competing with BiomX in
the field of microbiome therapies and may have patents and/or have filed and are likely filing patent applications potentially
relevant to BiomX’s business. In order to avoid infringing these third-party patents, BiomX may find it necessary or prudent
to obtain licenses to such patents from such third-party intellectual property holders. BiomX may also require licenses from third
parties for certain technologies that BiomX may be evaluating for use with BiomX’s current or future product candidates.
However, BiomX may be unable to secure such licenses or otherwise acquire or in-license any compositions, methods of
use, processes or other intellectual property rights from third parties that BiomX identifies as necessary for BiomX’s current
or future product candidates and BiomX’s proprietary product platform at a reasonable cost or on reasonable terms, if at
all. The licensing or acquisition of third-party intellectual property rights is a competitive area, and several more established
companies may pursue strategies to license or acquire third-party intellectual property rights that BiomX may consider attractive
or necessary. These established companies may have a competitive advantage over BiomX due to their size, capital resources and
greater clinical development and commercialization capabilities. In addition, companies that perceive BiomX to be a competitor
may be unwilling to assign or license rights to it. BiomX also may be unable to license or acquire third-party intellectual property
rights on terms that would allow BiomX to make an appropriate return on BiomX’s investment or at all.
In
the event that BiomX tries to obtain rights to required third-party intellectual property rights and is ultimately unsuccessful,
BiomX may be required to expend significant time and resources to redesign BiomX’s technology, product candidates or the
methods for manufacturing them or to develop or license replacement technology, all of which may not be feasible on a technical
or commercial basis. If BiomX is unable to do so, BiomX may be unable to develop or commercialize the affected product candidates
or continue to utilize its existing proprietary product platform technology, which could harm its business, financial condition,
results of operations and prospects significantly.
BiomX
relies on its proprietary product platform to identify microbiome therapies. BiomX’s competitive position could be materially
harmed if BiomX’s competitors develop a similar platform and develop rival product candidates.
BiomX
relies on know-how, inventions and other proprietary information to strengthen its competitive position. BiomX considers know-how to
be its primary intellectual property with respect to its proprietary product platform. Its clinical trials allow it to collect
clinical data, which it uses as a feedback loop to make improvements to its proprietary product platform. In particular, BiomX
anticipates that, with respect to this proprietary product platform, this data may over time be disseminated within the industry
through independent development, the publication of journal articles describing the method and the movement of skilled personnel.
BiomX
cannot rule out that its competitors may have or obtain the knowledge necessary to analyze and characterize similar data to its
known data for the purpose of identifying and developing products that could compete with any of its product candidates. BiomX’s
competitors may also have significantly greater financial, product development, technical, and human resources access to date.
Further, BiomX’s competitors may have significantly greater experience in using translational science methods to identify
and develop product candidates.
BiomX
may not be able to prohibit its competitors from using technology or methods that are the same as or similar to its proprietary
product platform to develop their own product candidates. If BiomX’s competitors develop associated therapies, BiomX’s
ability to develop and market a promising product or product candidate may diminish substantially, which could have a material
adverse effect on its business, financial condition, prospects and results of operations.
BiomX
relies on trade secrets and other forms of non-patent intellectual property protection. If BiomX is unable to protect its trade
secrets, other companies may be able to compete more effectively against BiomX.
BiomX
relies on trade secrets to protect certain aspects of its technology, including its proprietary processes for manufacturing and
purifying bacteriophages. Trade secrets are difficult to protect, especially in the pharmaceutical industry, where much of the
information about a product must be made public during the regulatory approval process. Although BiomX uses reasonable efforts
to protect its trade secrets, its employees, consultants, contractors, outside scientific collaborators and other advisors may
unintentionally or willfully disclose its information to competitors. Enforcing a claim that a third party illegally obtained
and is using its trade secret information is expensive and time-consuming, and the outcome is unpredictable. In addition, courts
outside the United States may be less willing to or may not protect trade secrets. Moreover, BiomX’s competitors may independently
develop equivalent knowledge, methods and know-how.
If
BiomX is sued for infringing intellectual property rights of third parties or if BiomX is forced to engage in an interference
proceeding, it will be costly and time-consuming, and an unfavorable outcome in that litigation or interference would have a material
adverse effect on BiomX’s business.
BiomX’s
ability to commercialize its product candidates depends on BiomX’s ability to develop, manufacture, market and sell BiomX’s
product candidates without infringing the proprietary rights of third parties. Numerous U.S. and foreign patents and patent applications,
which are owned by third parties, exist in the general field of anti-infective products or in fields that otherwise may relate
to BiomX’s product candidates. If BiomX is shown to infringe, BiomX could be enjoined from the use or sale of the claimed
invention if it is unable to prove that the patent is invalid. In addition, because patent applications can take many years to
issue, there may be currently pending patent applications, unknown to us, that may later result in issued patents that BiomX’s
product candidates may infringe or that may trigger an interference proceeding regarding one of BiomX’s owned or licensed
patents or applications. There could also be existing patents of which BiomX are not aware that its product candidates may inadvertently
infringe or that may become involved in an interference proceeding.
The
biotechnology and pharmaceutical industries are characterized by the existence of a large number of patents and frequent litigation
based on allegations of patent infringement. For so long as BiomX’s product candidates are in clinical trials, BiomX believes
its clinical activities fall within the scope of the exemptions provided by 35 U.S.C. Section 271(e) in the United States, which
exempts from patent infringement liability activities reasonably related to the development and submission of information to the
FDA. As BiomX’s clinical investigational drug product candidates progress toward commercialization, the possibility of a
patent infringement claim against BiomX increases. While BiomX attempts to ensure that its active clinical investigational drugs
and the methods it employs to manufacture them, as well as the methods for their use it intends to promote, do not infringe other
parties’ patents and other proprietary rights, BiomX cannot be certain they do not, and competitors or other parties may
assert that BiomX infringe their proprietary rights in any event.
BiomX
may be exposed to future litigation based on claims that BiomX’s product candidates, the methods BiomX employs to manufacture
them or the uses for which BiomX intends to promote them infringe the intellectual property rights of others. BiomX’s ability
to manufacture and commercialize its product candidates may depend on BiomX’s ability to demonstrate that the manufacturing
processes it employs and the use of its product candidates do not infringe third-party patents. If third-party patents were found
to cover BiomX’s product candidates or their use or manufacture, BiomX could be required to pay damages or be enjoined and
therefore unable to commercialize its product candidates, unless BiomX obtained a license. A license may not be available to BiomX
on acceptable terms, if at all.
BiomX
may become subject to claims for remuneration or royalties for assigned service invention rights by BiomX’s employees, which
could result in litigation and adversely affect BiomX’s business.
A
significant portion of BiomX’s intellectual property has been developed by BiomX’s employees in the course of
their employment for it. Under the Israeli Patent Law, 5727-1967 (the “Patent Law”) inventions conceived by an employee
during the term and as part of the scope of his or her employment with a company are regarded as “service
inventions,” which belong to the employer, absent a specific agreement between the employee and employer giving the
employee service invention rights. The Patent Law also provides that, if there is no such agreement between an employer and
an employee, the Israeli Compensation and Royalties Committee, or the Committee, a body constituted under the Patent Law,
shall determine whether the employee is entitled to remuneration for his or her inventions. BiomX generally enters into
assignment of invention agreements with its employees pursuant to which such individuals assign to BiomX all rights to any
inventions created in the scope of their employment or engagement with it. Although BiomX’s employees have agreed to
assign to it service invention rights, BiomX may face claims demanding remuneration in consideration for assigned inventions.
As a consequence of such claims, BiomX could be required to pay additional remuneration or royalties to its current or former
employees or be forced to litigate such claims, which could negatively affect BiomX’s business.
Risks
Related to BiomX’s Reliance on Third Parties
BiomX
relies, and expect to continue to rely, on third parties to conduct its clinical trials, and those third parties may not perform
satisfactorily, including failing to meet deadlines for the completion of such trials.
BiomX
expects to continue to rely on third parties, such as contract research organizations (“CROs”), and clinical investigators,
to conduct and manage BiomX’s clinical trials.
BiomX’s
reliance on these third parties for research and development activities will reduce BiomX’s control over these activities
but does not relieve BiomX of its responsibilities. For example, BiomX remains responsible for ensuring that each of its clinical
trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires
BiomX to comply with regulatory standards, commonly referred to as good clinical practices, for conducting, recording and reporting
the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, safety
and welfare of trial participants are protected. Other countries’ regulatory agencies also have requirements for clinical
trials with which BiomX must comply. BiomX also is required to register ongoing clinical trials and post the results of completed
clinical trials in a government-sponsored database, clinicaltrials.gov, within specified time frames. Failure to do so can
result in fines, adverse publicity, and civil and criminal sanctions.
Furthermore,
these third parties may also have relationships with other entities, some of which may be BiomX’s competitors. If these
third parties do not successfully carry out their contractual duties, do not meet expected deadlines, experience work stoppages,
terminate their agreements with BiomX or need to be replaced, or do not conduct BiomX’s clinical trials in accordance with
regulatory requirements or BiomX’s stated protocols, BiomX may need to enter into new arrangements with alternative third
parties, which could be difficult, costly or impossible, and BiomX’s clinical trials may be extended, delayed, terminated
or need to be repeated. If any of the foregoing occurs, BiomX may not be able to obtain, or may be delayed in obtaining, marketing
approvals for its product candidates and may not be able to, or may be delayed in its efforts to, successfully commercialize its
product candidates.
BiomX
also expects to rely on other third parties to store and distribute drug supplies for its clinical trials. Any performance failure
on the part of BiomX’s distributors could delay clinical development or marketing approval of BiomX’s product
candidates or commercialization of BiomX’s products, producing additional losses and depriving BiomX of potential product
revenue.
Third-party
relationships are important to BiomX’s business. If BiomX is unable to maintain its collaborations or enter into new relationships,
or if these relationships are not successful, BiomX’s business could be adversely affected.
BiomX
has limited capabilities for product development and does not yet have any capability for sales, marketing or distribution. Accordingly,
BiomX enters into relationships with other companies and academic institutions to provide BiomX with important technology, and
BiomX may receive additional technology and funding under these and other collaborations in the future. The relationships BiomX
enters into may pose a number of risks, including the following:
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third
parties have, and future third-party collaborators may have, significant discretion in determining the efforts and resources
that they will apply;
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current
and future third parties may not perform their obligations as expected;
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current
and future third parties may not pursue development and commercialization of any product candidates that achieve regulatory
approval or may elect not to continue or renew development or commercialization programs based on clinical trial results,
changes in the third parties’ strategic focus or available funding, or external factors, such as a strategic transaction
that may divert resources or create competing priorities;
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third
parties may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon
a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical
testing;
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current
and future third parties could independently develop, or develop with third parties, products that compete directly or indirectly
with BiomX’s products and product candidates if the third parties believe that the competitive products are more likely
to be successfully developed or can be commercialized under terms that are more economically attractive than BiomX’s;
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product
candidates discovered in collaboration with BiomX may be viewed by BiomX’s current or future third parties as competitive
with their own product candidates or products, which may cause such third parties to cease to devote resources to the commercialization
of BiomX’s product candidates;
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current
and future third parties may fail to comply with applicable regulatory requirements regarding the development, manufacture,
distribution or marketing of a product candidate or product;
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current
and future third parties with marketing and distribution rights to one or more of BiomX’s product candidates that achieve
regulatory approval may not commit sufficient resources to the marketing and distribution of such product or products;
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disagreements
with current or future third parties, including disagreements over proprietary rights, contract interpretation or the preferred
course of development, might cause delays or terminations of the research, development or commercialization of product candidates,
might lead to additional responsibilities for BiomX with respect to product candidates, or might result in litigation or arbitration,
any of which would be time-consuming and expensive;
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current
and future third parties may not properly maintain or defend BiomX’s intellectual property rights or may use BiomX’s
proprietary information in such a way as to invite litigation that could jeopardize or invalidate BiomX’s intellectual
property or proprietary information or expose BiomX to potential litigation;
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current
and future third parties may infringe the intellectual property rights of others, which may expose BiomX to litigation and
potential liability;
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current
and future third parties may infringe regulatory frameworks (such as but not limited to cybersecurity and/or privacy frameworks),
which may expose BiomX to litigation and potential liability or require or lead BiomX to terminate relationships with them;
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if
a current or future third party of BiomX is involved in a business combination, the collaborator might deemphasize or terminate
the development or commercialization of any product candidate licensed to it by BiomX; and
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current
and future relationships may be terminated by the collaborator, and, if terminated, BiomX could be required to raise additional
capital to pursue further development or commercialization of the applicable product candidates.
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If
BiomX’s relationships do not result in the successful discovery, development and commercialization of products or if one
of BiomX’s third-party collaborators terminates its agreement with it, BiomX may not receive any future research funding
or milestone or royalty payments under the collaboration. If BiomX does not receive the funding it expects under these agreements,
BiomX’s development of its technology and product candidates could be delayed, and BiomX may need additional resources to
develop product candidates and its technology. Additionally, if any of BiomX’s current or future third-party collaborators
terminates its agreement with it, BiomX may find it more difficult to attract new collaborators, and BiomX’s reputation
in the business and financial communities could be adversely affected.
Relationships
are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business
combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. BiomX
faces significant competition in seeking appropriate collaborators. BiomX’s ability to reach a definitive agreement for
a collaboration will depend, among other things, upon BiomX’s assessment of a collaborator’s resources and expertise,
the terms and conditions of a proposed collaboration and a proposed collaborator’s evaluation of a number of factors
BiomX
may not be successful in maintaining or establishing collaborations, which could adversely affect BiomX’s ability to develop
and, if required regulatory approvals are obtained, commercialize BiomX’s product candidates.
In
the future, in order to advance BiomX’s clinical development, or in connection with any potential out-licensing of product
candidates or technologies, BiomX may seek to enter into collaboration agreements. In addition, BiomX may consider entering into
collaboration arrangements with medical technology, pharmaceutical or biotechnology companies and/or seek to establish strategic
relationships with marketing partners for the development, sale, marketing and/or distribution of BiomX’s product candidates
within or outside of the United States. If BiomX is unable to reach agreements with potential collaborators, then BiomX may fail
to meet its business objectives for the affected product candidates or programs. Collaboration arrangements are complex and time-consuming
to negotiate, document and implement, and BiomX may not be successful in its efforts, if any, to establish and implement collaborations
or other alternative arrangements. The terms of any collaboration or other arrangements that BiomX establish may not be favorable
to it, and the success of any such collaboration will depend heavily on the efforts and activities of BiomX’s collaborators.
Moreover, BiomX’s collaboration agreement could be terminated or not renewed by a third party at a time that is costly or
damaging to BiomX. Any failure to engage successful collaborators could cause delays in BiomX’s product development and/or
commercialization efforts, which could harm BiomX’s financial condition and operational results.
Risks
Related to BiomX’s Operations in Israel
BiomX
has received, and may continue to receive Israeli governmental grants to assist in the funding of its research and development
activities. If BiomX loses its funding from these research and development grants, BiomX may encounter difficulties in the funding
of future research and development projects and implementing technological improvements, which would harm BiomX’s operating
results.
Through June 30, 2019, BiomX had received
an aggregate of $2.1 million in the form of grants from the Israeli Innovation Authority (“IIA”). BiomX was formed
as an incubator company as part of the FutuRx incubator, and, until 2017, the majority of BiomX’s funding was from IIA grants
and funding by the incubator, which is supported by the IIA. BiomX continued to apply for and receive IIA grants after BiomX left
the incubator. The requirements and restrictions for such grants are found in the Israel Encouragement of Research and Development
in Industries (the “Research Law”). Under the Research Law, royalties of 3% to 3.5% on the revenue derived from sales
of products or services developed in whole or in part using these IIA grants are payable to the Israeli government. BiomX developed
both of its platform technologies, at least in part, with funds from these grants, and, accordingly, BiomX would be obligated
to pay these royalties on sales of any of its product candidates that achieve regulatory approval. As long as the manufacturing
of BiomX’s product candidates takes place in Israel and no technology funded with IIA grants is sold or out licensed to
a non-Israeli entity, the maximum aggregate royalties paid generally would not exceed 100% of the grants made to us, plus annual
interest equal to the 12-month LIBOR rate applicable to dollar deposits, as published on the first business day of each calendar
year. As of June 30, 2019, the balance of the principal and interest in respect of BiomX’s commitments for future payments
to the IIA totaled approximately $2.2 million. As part of funding BiomX’s current and planned product development activities,
BiomX has submitted follow-up grant applications for new grants.
These
grants have funded some of BiomX’s personnel, development activities with subcontractors, and other research and development
costs and expenses. However, if these awards are not funded in their entirety or if new grants are not awarded in the future,
due to, for example, IIA budget constraints or governmental policy decisions, BiomX’s ability to fund future research and
development and implement technological improvements would be impaired, which would negatively impact BiomX’s ability to
develop its product candidates.
The
Israeli government grants BiomX has received for research and development expenditures restrict BiomX’s ability to manufacture
products and transfer technology outside of Israel and requires BiomX to satisfy specified conditions. If BiomX fails to satisfy
these conditions, BiomX may be required to refund grants previously received, together with interest and penalties.
BiomX’s research
and development efforts have been financed, in part, through the grants that BiomX have received from the IIA. BiomX, therefore,
must comply with the requirements of the Research Law. For the six months ended June 30, 2019 and 2018, BiomX recorded grants
totaling $0.3 million and $0.6 million, from the IIA, respectively. The grants represented 5.1% and 15.4% of BiomX’s gross
research and development expenditures for the six months ended June 30, 2019 and 2018, respectively. For the years ended December
31, 2018, 2017 and 2016, BiomX recorded grants totaling $0.6 million, $0.7 million and $0.3 million, from the IIA, respectively.
The grants represented 6.6%, 13.6% and 20.8% of BiomX’s gross research and development expenditures for the years ended
December 31, 2018, 2017 and 2016, respectively.
Under
the Research Law, BiomX is required to manufacture the major portion of each of its products developed using these grants in the
State of Israel or otherwise ask for special approvals. BiomX may not receive the required approvals for any proposed transfer
of manufacturing activities. Even if BiomX does receive approval to manufacture products developed with government grants outside
of Israel, the royalty rate may be increased, and BiomX may be required to pay up to 300% of the grant amounts, plus interest,
depending on the manufacturing volume that is performed outside of Israel. This restriction may impair BiomX’s ability to
outsource manufacturing or engage in BiomX’s own manufacturing operations for those products or technology.
Additionally,
under the Research Law, BiomX is prohibited from transferring, including by way of license, the IIA-financed technology and related
intellectual property rights and know-how outside of the State of Israel, except under limited circumstances and only with the
approval of the IIA Research Committee. BiomX may not receive the required approvals for any proposed transfer, and, even if received,
BiomX may be required to pay the IIA a portion, to be set by the IIA, in its discretion and taking into account the circumstances,
upon its approval of such transaction, of the consideration or milestone and royalty payments that BiomX receives upon any sale
or out-licensing of such technology to a non-Israeli entity, up to 600% of the grant amounts plus interest.
These
restrictions may impair BiomX’s ability to sell its technology assets or to perform or outsource manufacturing outside of
Israel or otherwise transfer its know-how outside of Israel and may require it to obtain the approval of the IIA for certain actions
and transactions and pay additional royalties and other amounts to the IIA. In addition, any change of control and any change
of ownership of BiomX’s shares of common stock that would make a non-Israeli citizen or resident an “interested party,”
as defined in the Research Law, requires prior written notice to the IIA, and BiomX’s failure to comply with this requirement
could, under certain circumstances, result in criminal liability.
These
restrictions will continue to apply even after BiomX has repaid the full amount of royalties on the grants.
Potential
political, economic and military instability in the State of Israel, where the majority of BiomX’s senior management and
BiomX’s research and development facilities are located, may adversely affect BiomX’s results of operations.
BiomX’s
headquarters and principal offices and most of BiomX’s operations are located in the State of Israel. In addition, all but
one of BiomX’s key employees and officers and the majority of BiomX’s directors are residents of Israel. Accordingly,
political, economic and military conditions in Israel directly affect BiomX’s business. Since the State of Israel was established
in 1948, a number of armed conflicts have occurred between Israel and its neighboring countries.
Any
hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or a
significant downturn in the economic or financial condition of Israel, could affect adversely BiomX’s operations. Ongoing
and revived hostilities or other Israeli political or economic factors could harm BiomX’s operations, product development
and results of operations.
Although
Israel has entered into various agreements with Egypt, Jordan and the Palestinian Authority, there has been an increase in unrest
and terrorist activity, which began in October 2000 and has continued with varying levels of severity. For instance, beginning
in July 2014, for approximately seven weeks, Israel experienced an armed conflict between Israel and Hamas, which included rocket
strikes against civilian targets in various parts of Israel and disrupted day-to-day civilian activity in southern and central
Israel. If renewed, such hostilities may negatively affect business conditions in Israel. In addition, Israel faces threats from
more distant neighbors, in particular, Iran. BiomX’s insurance policies do not cover it for the damages incurred in connection
with these conflicts or for any resulting disruption in its operations. The Israeli government, as a matter of law, provides coverage
for the reinstatement value of direct damages that are caused by terrorist attacks or acts of war; however, the government may
cease providing such coverage or the coverage might not be enough to cover potential damages. In the event that hostilities disrupt
the ongoing operation of BiomX’s facilities or the airports and seaports on which BiomX depend to import and export its
supplies and products, BiomX’s operations may be materially adversely affected.
In
addition, since the end of 2010, numerous acts of protest and civil unrest have taken place in several countries in the Middle
East and North Africa, many of which involved significant violence. The civil unrest in Egypt, which borders Israel, resulted
in the resignation of its president, Hosni Mubarak, and significant changes to the country’s government. In Syria, also
bordering Israel, a civil war continues to take place. The ultimate effect of these developments on the political and security
situation in the Middle East and on Israel’s position within the region is not clear at this time. Such instability may
lead to deterioration in the political and trade relationships that exist between the State of Israel and certain other countries.
Several
countries, principally in the Middle East, still restrict doing business with Israel and Israeli companies, and additional countries
may impose restrictions on doing business with Israel and Israeli companies, whether as a result of hostilities in the region
or otherwise. In addition, there have been increased efforts by activists to cause companies, research institutions and consumers
to boycott Israeli goods and cooperation with Israeli-related entities based on Israeli government policies. Such actions, particularly
if they become more widespread, may adversely impact BiomX’s ability to cooperate with research institutions and collaborate
with other third parties. Any hostilities involving Israel, any interruption or curtailment of trade or scientific cooperation
between Israel and its present partners, or a significant downturn in the economic or financial condition of Israel could adversely
affect BiomX’s business, financial condition and results of operations. BiomX may also be targeted by cyber terrorists specifically
because BiomX is an Israeli-related company.
Under
applicable employment laws, BiomX may not be able to enforce covenants not to compete.
BiomX
generally enters into noncompetition agreements with BiomX’s employees. These agreements prohibit BiomX’s employees,
if they cease working for it, from competing directly with BiomX or working for BiomX’s competitors or clients for a limited
period. BiomX may be unable to enforce these agreements under the laws of the jurisdictions in which BiomX’s employees work,
and it may be difficult for BiomX to restrict its competitors from benefitting from the expertise BiomX’s former employees
or consultants developed while working for it. For example, Israeli labor courts have required employers seeking to enforce noncompete
undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited
number of material interests of the employer that have been recognized by the courts, such as the protection of a company’s
trade secrets or other intellectual property.
BiomX’s
operations may be disrupted by the obligations of personnel to perform military service.
Some
of BiomX’s employees based in Israel may be called upon to perform annual military reserve duty and, in emergency circumstances,
could be called to immediate and unlimited active duty. BiomX’s operations could be disrupted by the absence of a significant
number of BiomX’s employees related to military service or the absence for extended periods of one or more of BiomX’s
executive officers or other key employees. Such disruption could materially adversely affect BiomX’s business and results
of operations.
The
tax benefits that are available to BiomX if and when BiomX generates taxable income requires BiomX to meet various conditions
and may be prevented or reduced in the future, which could increase BiomX’s costs and taxes.
If
and when BiomX generates taxable income, BiomX would be eligible for certain tax benefits provided to “Technologic Preferred
Enterprise” and/or “Preferred Enterprise” as defined under the Encouragement of Capital Investment Law
-1959 (the “Law”) and its regulations, as amended and, accordingly, could be subject to a reduced corporate tax rate
on its income that will meet the provisions of the Law (ranging between 7.5%-16%). To the extent that BiomX is not be eligible
to obtain such statuses, BiomX’s Israeli taxable income would be subject to regular Israeli corporate tax rates. The standard
corporate tax rate for Israeli companies is 23%. The benefits available to BiomX in accordance to the Law and its regulations
are subject to the fulfillment of conditions stipulated in the Law and the regulations. Further, in the future, these tax benefits
may be reduced or discontinued.
It
may be difficult to enforce a U.S. judgment against BiomX or BiomX’s officers and directors named in this proxy statement
in Israel or the United States or to assert U.S. securities laws claims in Israel or serve process on BiomX’s officers and
directors.
Not
all of BiomX’s directors or officers are residents of the United States, and most of their and BiomX’s assets are
located outside the United States. Service of process upon BiomX or BiomX’s non-U.S. resident directors and officers may
be difficult to obtain within the United States. Israeli courts may refuse to hear a claim based on a violation of U.S. securities
laws against BiomX or BiomX’s non-U.S. officers and directors, because Israel may not be the most appropriate forum to bring
such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law, and not U.S. law,
is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact,
which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is
little binding case law in Israel addressing the matters described above. Additionally, Israeli courts might not enforce judgments
obtained in the United States against BiomX or BiomX’s non-U.S. directors and executive officers, which may make it difficult
to collect on judgments rendered against BiomX or BiomX’s non-U.S. officers and directors.
Moreover,
an Israeli court will not enforce a non-Israeli judgment if it was given in a state whose laws do not provide for the enforcement
of judgments of Israeli courts (subject to exceptional cases), if its enforcement is likely to prejudice the sovereignty or security
of the State of Israel, if it was obtained by fraud or in the absence of due process, if it is at variance with another valid
judgment that was given in the same matter between the same parties, or if a suit in the same matter between the same parties
was pending before a court or tribunal in Israel at the time the foreign action was brought.
Risks
Related to Manufacturing and Supply
BiomX
expects to rely on third parties to manufacture its clinical supply of product candidates, and BiomX intends to rely on third
parties to produce and process its products, if approved.
BiomX
currently relies on outside vendors to supply raw materials and other important components, such as lab equipment. BiomX has not
yet caused any product candidates to be manufactured or processed on a commercial scale and may not be able to do so for any of
its product candidates. BiomX will make changes as it works to optimize the manufacturing process for its product candidates,
and BiomX cannot be sure that even minor changes in the process will result in therapies that are safe and effective.
The
facilities used to manufacture BiomX’s product candidates must be approved by the FDA or equivalent foreign regulatory agencies
pursuant to inspections that will be conducted after BiomX submits a marketing application to the FDA or equivalent foreign regulatory
agency. Additionally, any facilities used for the manufacture of product candidates commercialized for non-therapeutic uses will
be subject to inspection by the FDA and foreign regulatory agencies. BiomX does not currently control all aspects of the manufacturing
process of, and are currently largely dependent on, BiomX’s contract manufacturing partners for compliance with regulatory
requirements, known as cGMP requirements, for manufacture of its product candidates. If and when BiomX’s manufacturing facility
becomes operational, BiomX will be responsible for compliance with cGMP requirements. If BiomX or BiomX’s contract manufacturers
cannot successfully manufacture in conformance with BiomX’s specifications and the strict regulatory requirements of the
FDA or other regulatory authorities, BiomX and they will not be able to secure and/or maintain regulatory approval for their manufacturing
facilities with respect to the manufacture of BiomX’s product candidates. In addition, BiomX has no control over the ability
of its contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or an
equivalent foreign regulatory agency does not approve these facilities for the manufacture of BiomX’s product candidates
or if it withdraws any such approval in the future, BiomX may need to find alternative manufacturing facilities, which would significantly
impact its ability to develop, obtain regulatory approval for or market its product candidates, if approved.
BiomX
has limited experience manufacturing its product candidates for purposes of clinical trials for therapeutic indications or for
non-therapeutic clinical studies or trials. BiomX opened its own manufacturing facility at its headquarters in Ness Ziona, Israel
in the third quarter of 2019. BiomX cannot assure you that it can manufacture its product candidates in compliance with regulations
at a cost or in quantities necessary to make them commercially viable.
BiomX’s
product candidates rely on the availability of specialty raw materials, which may not be available to BiomX on acceptable terms
or at all.
BiomX’s
product candidates require certain specialty raw materials, some of which BiomX obtains from small companies with limited resources
and experience to support a commercial product. These third-party suppliers may be ill-equipped to support BiomX’s needs,
especially in non-routine circumstances like an FDA inspection or medical crisis, such as widespread contamination. BiomX does
not currently have contracts in place with all of the suppliers that BiomX may need at any point in time and, if needed, may not
be able to contract with them on acceptable terms or at all. Accordingly, BiomX may experience delays in receiving key raw materials
to support clinical or commercial manufacturing.
Risks
Related to the Business Combination
The combined company expects to incur significant
costs as a result of operating as a public company.
As a public company, the
combined company will incur significant legal, accounting and other expenses. The combined company will be subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which require, among other things,
that it file with the SEC annual, quarterly and current reports with respect to its business and financial condition. In addition,
the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and the NYSE American Stock Exchange to implement provisions
of the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and
the Public Company Accounting Oversight Board impose significant requirements on public companies, including requiring the establishment
and maintenance of effective disclosure and financial controls and changes in corporate governance practices. These expenses will
likely increase in the future, particularly after the combined company ceases to be an “emerging growth company” if
it is also no longer a “smaller reporting company” as a result of additional corporate governance and disclosure requirements
under the Sarbanes-Oxley Act, the Dodd-Frank Act, and SEC rules and regulations.
The combined company expects the rules and
regulations applicable to public companies to result in it continuing to incur substantial legal and financial compliance costs.
These costs will increase its net loss or decrease any net income and may require the combined company to reduce costs in other
areas of its business.
BiomX’s
management will be required to devote substantial time to maintaining and improving its internal controls over financial reporting
and the requirements of being a public company which may, among other things, strain its resources, divert management’s
attention and affect its ability to accurately report its financial results and prevent fraud.
Historically, BiomX has operated as a private
company. Following the Business Combination, the combined company will be subject to the reporting requirements of the Exchange
Act, the Sarbanes-Oxley Act and the rules of the NYSE American Stock Exchange. The Sarbanes-Oxley Act requires, among other things,
that a company maintain effective disclosure controls and procedures (“DCP”) and internal controls over financial reporting
(“ICFR”). BiomX’s management and other personnel have limited experience operating as a public company, which
may result in operational inefficiencies or errors, or a failure to improve or maintain effective ICFR and DCP necessary to ensure
timely and accurate reporting of operational and financial results. BiomX’s existing management team will need to devote
a substantial amount of time to these compliance initiatives, and may need to add personnel in areas such as accounting, financial
reporting, investor relations and legal in connection with operations as a public company. Ensuring that the combined company has
adequate internal financial and accounting controls and procedures in place is a costly and time-consuming effort that needs to
be re-evaluated frequently. The combined company’s compliance with existing and evolving regulatory requirements will result
in increased administrative expenses and a diversion of management’s time and attention.
Pursuant to Sections 302 and 404 of the Sarbanes-Oxley
Act (“Section 404”), the combined company will be required to furnish certain certifications and reports by its management
on its ICFR, which, after it is no longer an emerging growth company and if it becomes an accelerated or large accelerated filer
under SEC rules, must be accompanied by an attestation report on ICFR issued by its independent registered public accounting firm.
To achieve compliance with Section 404 within the prescribed period, the combined company will document and evaluate its ICFR,
which is both costly and challenging. Implementing any appropriate changes to its internal controls may require specific compliance
training for the combined company’s directors, officers and employees, entail substantial costs to modify its existing accounting
systems, and take a significant period of time to complete. Such changes may not, however, be effective in maintaining the adequacy
of its ICFR, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely
basis, could increase its operating costs and could materially impair its ability to operate its business. Moreover, effective
internal controls are necessary for the combined company to produce reliable and timely financial reports and are important to
help prevent fraud. Any failure by the combined company to file its periodic reports in a timely manner may cause investors to
lose confidence in its reported financial information and may lead to a decline in the price of our common stock.
In accordance with NYSE American Stock Exchange
rules, the combined company will be required to maintain a majority independent Board of Directors. The various rules and regulations
applicable to public companies make it more difficult and more expensive to maintain directors’ and officers’ liability
insurance, and the combined company may be required to accept reduced coverage or incur substantially higher costs to maintain
coverage. If the combined company is unable to maintain adequate directors’ and officers’ insurance, its ability to
recruit and retain qualified officers and directors will be significantly curtailed.
BiomX
will need to grow the size of its organization, and may experience difficulties in managing this growth.
As
BiomX’s research, development, manufacturing and commercialization plans and strategies develop, and as it transitions into
operating as a public company, BiomX expects to need additional managerial, operational, sales, marketing, financial and other
personnel. Future growth would impose significant added responsibilities on members of management, including:
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identifying,
recruiting, compensating, integrating, maintaining and motivating additional employees;
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managing
BiomX’s internal research and development efforts effectively, including identification of clinical candidates, scaling
its manufacturing process and navigating the clinical and FDA review process for its product candidates; and
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improving
BiomX’s operational, financial and management controls, reporting systems and procedures.
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BiomX’s future financial
performance and our ability to commercialize BiomX’s product candidates will depend, in part, on its ability to effectively
manage any future growth, and BiomX’s management may also have to divert a disproportionate amount of its attention away
from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.
If
BiomX is not able to effectively expand its organization by hiring new employees and expanding its groups of consultants and contractors,
BiomX may not be able to successfully implement the tasks necessary to further develop and commercialize its product candidates
and, accordingly, may not achieve its research, development and commercialization goals.
The
unaudited pro forma financial information included in this proxy statement may not be representative of the combined company’s
results following the Business Combination.
The
unaudited pro forma financial information included in this proxy statement has been presented for informational purposes only
and is not necessarily indicative of the financial position or results of operations that actually would have occurred had the
Business Combination been completed as of the date indicated, nor is it indicative of the combined company’s future operating
results or financial position. The pro forma financial statements have been derived from the historical financial statements of
CHAC and BiomX and adjustments and assumptions have been made regarding the combined company after giving effect to the Business
Combination. The information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments
and assumptions are difficult to make with accuracy. Moreover, the pro forma financial statements do not reflect all costs that
are expected to be incurred by the combined company in connection with the Business Combination. As a result, the actual financial
condition of the combined company following the Business Combination may not be consistent with, or evident from, these pro forma
financial statements. The assumptions used in preparing the pro forma financial information may not prove to be accurate, and
other factors may affect the combined company’s financial condition following the Business Combination.
We
are an “emerging growth company,” and we cannot be certain that the reduced disclosure requirements applicable to
“emerging growth companies” will not make our common stock less attractive to investors.
We
are an “emerging growth company,” as defined under the JOBS Act. For so long as we are an emerging growth company,
we intend to take advantage of certain exemptions from reporting requirements that are applicable to other public companies that
are not emerging growth companies, including, but not limited to, compliance with the auditor attestation requirements of Section
404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy
statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder
approval of any golden parachute payments not previously approved.
We
could be an emerging growth company for up to five years from the end of our most recently completed fiscal year, although we
may lose such status earlier, depending on the occurrence of certain events, including when we have generated total annual gross
revenue of at least $1.07 billion or when we are deemed to be a “large accelerated filer” under the Exchange Act,
which means that the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30 of the
prior year, or when we have issued more than $1.0 billion in nonconvertible debt securities during the prior three-year period.
We
cannot predict if investors will not find our common stock less attractive or our company less comparable to certain other public
companies because we rely on these exemptions. If some investors find our common stock less attractive as a result, there may
be a less active trading market for our common stock, and our stock price may be more volatile.
Under
the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment
of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves
of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting
standards as other public companies that are not emerging growth companies.
As
a “smaller reporting company” we are permitted to provide less disclosure than larger public companies which may make
our common stock less attractive to investors.
We
are currently a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act. As a smaller
reporting company, we are eligible to take advantage of certain exemptions from various reporting requirements applicable to other
public companies. Consequently, it may be more challenging for investors to analyze our results of operations and financial prospects
which may result in less investor confidence. Investors may find our common stock less attractive as a result of our smaller
reporting company status. If some investors find our common stock less attractive, there may be a less active trading market for
our common stock and our stock price may be more volatile.
CHAC
and BiomX have incurred and expect to incur significant costs associated with the Business Combination. Whether or not the Business
Combination is completed, the incurrence of these costs will reduce the amount of cash available to be used for other corporate
purposes by CHAC whether or not the Business Combination is completed.
CHAC and BiomX expect to incur significant
costs associated with the Business Combination. Whether or not the Business Combination is completed, CHAC expects to incur approximately
$[1,300,000] in expenses, including a fee of $20,000 to be paid to Morrow Sodali, plus disbursements and reimbursement for out-of-pocket
expenses, in connection with the proxy solicitation for the special meeting. These expenses will reduce the amount of cash available
to be used for other corporate purposes by CHAC whether or not the Business Combination is completed.
In
the event that a significant number of CHAC Shares are redeemed, its stock may become less liquid following the Business Combination.
If
a significant number of CHAC Shares are redeemed, CHAC may be left with a significantly smaller number of stockholders. As
a result, trading in the shares of the surviving company following the Business Combination may be limited and your ability to
sell your shares in the market could be adversely affected. The NYSE American Stock Exchange may not list the CHAC Shares on its
exchange, which could limit investors’ ability to make transactions in CHAC’s securities and subject CHAC to additional
trading restrictions.
CHAC
will be required to meet the initial listing requirements to be listed on the NYSE American Stock Exchange following the Business
Combination. CHAC may not be able to meet those initial listing requirements. Even if CHAC’s securities are so listed, CHAC
may be unable to maintain the listing of its securities in the future.
If
CHAC fails to meet the initial listing requirements and the NYSE American Stock Exchange does not list its securities on its exchange,
the Business Combination will not close. However even if CHAC meets the initial listing requirements, if CHAC is subsequently
delisted, CHAC could face significant material adverse consequences, including:
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a
limited availability of market quotations for our securities;
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reduced
liquidity with respect to our securities;
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a
determination that our shares are a “penny stock,” which will require brokers
trading in our securities to adhere to more stringent rules, possibly resulting in a
reduced level of trading activity in the secondary trading market for our securities;
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a
limited amount of news and analyst coverage for the post-transaction company; and
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a
decreased ability to issue additional securities or obtain additional financing in the
future.
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CHAC
may waive one or more of the conditions to the Business Combination without resoliciting stockholder approval for the Business
Combination.
CHAC
may agree to waive, in whole or in part, some of the conditions to its obligations to complete the Business Combination, to the
extent permitted by applicable laws. The Board of Directors of CHAC will evaluate the materiality of any waiver to determine whether
amendment of this proxy statement and resolicitation of proxies is warranted. In some instances, if the Board of Directors of
CHAC determines that a waiver is not sufficiently material to warrant resolicitation of stockholders, CHAC has the discretion
to complete the Business Combination without seeking further stockholder approval. For example, it is a condition to CHAC’s
obligations to close the Business Combination that there be no restraining order, injunction or other order restricting BiomX’s
conduct of its business, however, if the Board of Directors of CHAC determines that any such order or injunction is not material
to the business of BiomX, then the Board of Directors may elect to waive that condition and close the Business Combination.
CHAC’s
stockholders will experience immediate dilution as a consequence of the issuance of CHAC Shares as consideration in the Business
Combination. Having a minority share position may reduce the influence that CHAC’ current stockholders have on the management
of CHAC.
After the Business Combination, assuming
no redemptions of CHAC Shares for cash and giving effect to the purchase and sale agreements described above, CHAC’s current
public stockholders will own approximately 20% of the outstanding CHAC Shares, CHAC’s current directors, officers and affiliates
will own approximately 7% of the outstanding CHAC Shares, and the former stockholders of BiomX will own approximately 73% of the
outstanding CHAC Shares. Assuming redemption by holders of 2,062,157 outstanding CHAC Shares, CHAC public stockholders will own
approximately 13% of the outstanding CHAC Shares, CHAC’s Sponsor and current directors, officers and affiliates will own
approximately 5% of the outstanding CHAC Shares, and the former stockholders of BiomX will own approximately 82% of the outstanding
CHAC Shares. The minority position of the former CHAC stockholders will give them limited influence over the management and operations
of the combined company.
Risks
Related to CHAC’s Business
CHAC
will be forced to liquidate the trust account if it cannot consummate a business combination by the date that is 24 months from
the closing of the Initial Public Offering, or December 18, 2020. In the event of a liquidation, CHAC’s public stockholders
will receive $10.00 per share and the CHAC Warrants will expire worthless.
If
CHAC is unable to complete a business combination by the date that is 24 months from the closing of the Initial Public Offering,
or December 18, 2020, and is forced to liquidate, the per-share liquidation distribution will be $10.00, plus interest earned
on amounts held in trust that have not been used to pay for taxes. Furthermore, there will be no distribution with respect to
the CHAC Warrants, which will expire worthless as a result of CHAC’s failure to complete a business combination.
You
must tender your CHAC Shares in order to validly seek redemption at the special meeting of stockholders.
In
connection with tendering your shares for redemption, you must elect either to physically tender your share certificates to CHAC’s
transfer agent or to deliver your common stock to the transfer agent electronically using The Depository Trust Company’s
DWAC (Deposit/Withdrawal At Custodian) System, in each case by two (2) business days prior to the date of the special meeting.
The requirement for physical or electronic delivery ensures that a redeeming holder’s election to redeem is irrevocable
once the Business Combination is consummated. Any failure to observe these procedures will result in your loss of redemption rights
in connection with the vote on the Business Combination.
If
you or a “group” of stockholders are deemed to hold in excess of 20% of CHAC’s shares of common stock, you will
lose the ability to redeem all such shares in excess of 20% of CHAC’s shares of common stock.
CHAC’s
Amended and Restated Certificate of Incorporation provides that a public stockholder, individually or together with any affiliate
of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined
under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to more than an aggregate
of 20% of the shares sold in this offering. Your inability to redeem more than an aggregate of 20% of the shares sold in this
offering will reduce your influence over CHAC’s ability to consummate its initial business combination and you could suffer
a material loss on your investment in CHAC if you sell such excess shares in open market transactions. As a result, you will continue
to hold that number of shares exceeding 20% and, in order to dispose of such shares, you would be required to sell your shares
in open market transaction, potentially at a loss.
If
third parties bring claims against CHAC, the proceeds held in trust could be reduced and the per-share liquidation price received
by CHAC’s stockholders may be less than $10.00.
CHAC’s
placing of funds in trust may not protect those funds from third party claims against CHAC. Although CHAC has received from many
of the vendors, service providers (other than its independent accountants) and prospective target businesses with which it does
business executed agreements waiving any right, title, interest or claim of any kind in or to any monies held in the trust account
for the benefit of CHAC’s public stockholders, they may still seek recourse against the trust account. Additionally, a court
may not uphold the validity of such agreements. Accordingly, the proceeds held in trust could be subject to claims which could
take priority over those of CHAC’s public stockholders. If CHAC liquidates the trust account before the completion of a
business combination and distributes the proceeds held therein to its public stockholders, our Sponsor has contractually agreed
that it will be liable to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or
claims of vendors or other entities that are owed money by us for services rendered or contracted for or products sold to us,
but only if such a vendor or prospective target business does not execute such a waiver. However, CHAC cannot assure you that
they will be able to meet such obligation. Therefore, the per-share distribution from the trust account for our stockholders may
be less than $10.00 due to such claims.
Additionally,
if CHAC is forced to file a bankruptcy case or an involuntary bankruptcy case is filed against it which is not dismissed, the
proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in CHAC’s bankruptcy
estate and subject to the claims of third parties with priority over the claims of its stockholders. To the extent any bankruptcy
claims deplete the trust account, CHAC may not be able to return $10.00 to our public stockholders.
CHAC’s
stockholders may be held liable for claims by third parties against CHAC to the extent of distributions received by them.
Under
the DGCL, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received
by them in a dissolution. The pro rata portion of the trust account distributed to our public stockholders upon the redemption
of 100% of our public shares in the event we do not consummate an initial business combination by December 18, 2020 may be considered
a liquidation distribution under Delaware law. If a corporation complies with certain procedures set forth in Section 280 of the
DGCL intended to ensure that it makes reasonable provision for all claims against it, including a 60-day notice period during
which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any
claims brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability
of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share
of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third
anniversary of the dissolution. However, we intend to redeem our public shares as soon as reasonably possible following December
18, 2020 in the event we do not consummate an initial business combination and, therefore, we do not intend to comply with those
procedures.
Because
we will not be complying with Section 280 of the DGCL, Section 281(b) of the DGCL requires the Company to adopt a plan, based
on facts known to us at such time that will provide for the payment of all existing and pending claims or claims that may be potentially
brought against the Company within the 10 years following dissolution. However, because we are a blank check company, rather than
an operating company, and our operations have been limited to searching for prospective target businesses, the only likely claims
to arise would be from vendors (such as lawyers, investment bankers, and consultants) or prospective target businesses. If the
Company’s plan of distribution complies with Section 281(b) of the DGCL, any liability of our stockholders with respect
to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed
to the stockholder, and any liability of the stockholder would likely be barred after the third anniversary of the dissolution.
There can be no assurance that we will properly assess all claims that may be potentially brought against us. As such, our stockholders
could potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of
its stockholders may extend beyond the third anniversary of such date. Furthermore, if the pro rata portion of the trust account
distributed to our public stockholders upon the redemption of 100% of our public shares in the event we do not consummate an initial
business combination within the required timeframe is not considered a liquidation distribution under Delaware law and such redemption
distribution is deemed to be unlawful, then pursuant to Section 174 of the DGCL, the statute of limitations for claims of creditors
could then be six years after the unlawful redemption distribution, instead of three years, as in the case of a liquidation distribution.
If
we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, any distributions
received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential
transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received
by our stockholders. Furthermore, because we intend to distribute the proceeds held in the trust account to our public stockholders
promptly after December 18, 2020 in the event we do not consummate an initial business combination, this may be viewed or interpreted
as giving preference to our stockholders over any potential creditors with respect to access to or distributions from the Company’s
assets. Furthermore, our board of directors may be viewed as having breached its fiduciary duties to the Company’s creditors
and/or may have acted in bad faith, thereby exposing itself and the Company to claims of punitive damages, by paying our stockholders
from the trust account prior to addressing the claims of creditors. There can be no assurance that claims will not be brought
against the Company for these reasons.
If
CHAC’s due diligence investigation of BiomX was inadequate, then stockholders of CHAC following the Business Combination
could lose some or all of their investment.
Even
though CHAC conducted a due diligence investigation of BiomX, it cannot be sure that this diligence uncovered all material issues
that may be present inside BiomX or its business, or that it would be possible to uncover all material issues through a customary
amount of due diligence, or that factors outside of BiomX and its business and outside of its control will not later arise.
Because
CHAC’s Sponsor and all of CHAC’s officers and directors own CHAC Shares and CHAC Warrants which will not participate
in liquidation distributions and, therefore, they will lose their entire investment in us and face other financial consequences
if the Business Combination is not completed, they may have a conflict of interest in determining whether the Business Combination
is appropriate.
CHAC’s Sponsor and all of CHAC’s
officers and directors own an aggregate of 1,750,000 shares and warrants to purchase 2,900,000 shares of common stock of CHAC.
Such individuals have waived their right to redeem these shares, or to receive distributions with respect to these shares upon
the liquidation of the trust account if CHAC is unable to consummate a business combination. Accordingly, the CHAC Shares, as
well as the Private CHAC Warrants purchased by an affiliate of our Sponsor, will be worthless if CHAC does not consummate a business
combination. Based on a market price of $[___] per share of common stock of CHAC on [September 17], 2019 and $[___] per warrant
on [September 17], 2019, the value of these shares and warrants was approximately $[___] million. The CHAC Shares acquired prior
to the Initial Public Offering, as well as the Private CHAC Warrants will be worthless if CHAC does not consummate a business
combination. Consequently, our directors’ and officers’ discretion in identifying and selecting BiomX as a suitable
target business may result in a conflict of interest when determining whether the terms, conditions and timing of the Business
Combination are appropriate and are fair to, and in the best interests of, CHAC and its stockholders.
In
addition, at the closing of the Business Combination, our Sponsor, executive officers and directors, or any of their respective
affiliates, will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying
potential target businesses and performing due diligence on suitable business combinations. There is no cap or ceiling on the
reimbursement of out-of-pocket expenses incurred in connection with activities on our behalf. These financial interests of our
Sponsor, executive officers and directors may have influenced their motivation in identifying and selecting BiomX for the Business
Combination.
CHAC
is requiring stockholders who wish to redeem their common stock in connection with the Business Combination to comply with specific
requirements for redemption that may make it more difficult for them to exercise their redemption rights prior to the deadline
for exercising their rights.
CHAC
is requiring stockholders who wish to redeem their common stock to either tender their certificates to our transfer agent or to
deliver their shares to the transfer agent electronically using the Depository Trust Company’s, or DTC, DWAC (Deposit/Withdrawal
At Custodian) System by no later than two (2) business days prior to the Special Meeting. In order to obtain a physical certificate,
a stockholder’s broker and/or clearing broker, DTC and CHAC’s transfer agent will need to act to facilitate this request.
It is CHAC’s understanding that stockholders should generally allot at least two weeks to obtain physical certificates from
the transfer agent.
However,
because we do not have any control over this process or over the brokers or DTC, it may take significantly longer than two weeks
to obtain a physical stock certificate. While we have been advised that it takes a short time to deliver shares through the DWAC
System, we cannot assure you of this fact. Accordingly, if it takes longer than CHAC anticipates for stockholders to deliver their
common stock, stockholders who wish to redeem may be unable to meet the deadline for exercising their redemption rights and thus
may be unable to redeem their common stock.
CHAC
will require its stockholders who wish to redeem their common stock in connection with the Business Combination to comply with
specific requirements for redemption described above, and such redeeming stockholders may be unable to sell their securities when
they wish to in the event that the Business Combination is not consummated.
CHAC
is requiring that public stockholders who wish to redeem their common stock in connection with the proposed Business Combination
to comply with specific requirements for redemption as described above. If the Business Combination is not consummated, investors
who attempted to redeem their common stock will be unable to sell their securities after the failed Business Combination until
CHAC has returned their securities to them. The market price for CHAC’s common stock may decline during this time and you
may not be able to sell your securities when you wish to, even while other stockholders that did not seek redemption may be able
to sell their securities.
CHAC’s
Sponsor and other initial stockholders, which include its officers and directors, control a substantial interest in CHAC and thus
may influence certain actions requiring a stockholder vote.
CHAC’s initial stockholders, including all of its officers and directors, collectively own approximately
20% of CHAC’s issued and outstanding common stock. CHAC’s Sponsor and other initial stockholders have agreed to vote
any shares they own in favor of the Business Combination. Therefore, we would need only 437,501 of our public shares (or approximately
6.3% of our public shares) to be voted in favor of the transaction in order to have such transaction approved (assuming that only
a quorum was present at the meeting).
If
CHAC’s security holders exercise their registration rights with respect to their securities, it may have an adverse effect
on the market price of CHAC’s securities.
CHAC’s Sponsor and other initial
stockholders are entitled to make a demand that it register the resale of their insider shares at any time commencing three months
prior to the date on which their shares may be released from escrow. Additionally, the purchasers of the private placement Private
CHAC Warrants and our initial stockholders, officers and directors are entitled to demand that we register the resale of the shares
underlying the Private CHAC Warrants and any securities our initial stockholders, officers, directors or their affiliates may
be issued in payment of working capital loans made to us at any time after we consummate a business combination. If such persons
exercise their registration rights with respect to all of their securities, then there will be an additional 4,650,000 CHAC Shares
eligible for trading in the public market. The presence of these additional common stock trading in the public market may have
an adverse effect on the market price of CHAC’s securities.
CHAC
will not obtain an opinion from an unaffiliated third party as to the fairness of the Business Combination to its stockholders.
CHAC
is not required to obtain an opinion from an unaffiliated third party that the price it is paying is fair to its public stockholders
from a financial point of view. CHAC’s public stockholders therefore, must rely solely on the judgment of CHAC’s Board
of Directors, and our Board of Directors may not have properly valued such business. The lack of a third-party valuation or fairness
opinion may also lead an increased number of stockholders to vote against the Business Combination or demand redemption of their
shares into cash, which could potentially impact our ability to consummate the Business Combination.
CHAC’s
directors and officers may have certain conflicts in determining to recommend the acquisition of BiomX, since certain of their
interests, and certain interests of their affiliates and associates, are different from, or in addition to, your interests as
a stockholder.
CHAC’s
management and directors have interests in and arising from the Business Combination that are different from, or in addition to,
your interests as a stockholder, which could result in a real or perceived conflict of interest. These interests include the fact
that the CHAC Shares and CHAC Warrants owned by CHAC’s management and directors, or their affiliates and associates, would
become worthless if the Business Combination Proposal is not approved and CHAC otherwise fails to consummate a business combination
prior to its liquidation date.
Risks
Related to the Financial Projections
You should be aware that uncertainties are inherent in
prospective financial projections of any kind, and such uncertainties increase with the passage of time. None of CHAC or BiomX
or any of their respective affiliates, advisors, officers, directors, or representatives has made or makes any representation or
can give any assurance to any CHAC stockholders, or any other person, regarding the ultimate performance of BiomX compared to the
information set forth under “The Business Combination Proposal - Summary of CHAC Financial Analysis” or that any such
results will be achieved.
The
inclusion of CHAC’s projections relating to BiomX’s business in this proxy statement should not be regarded as an
indication that CHAC, BiomX or their respective advisors or other representatives considered or consider the projections to be
necessarily predictive of actual future performance or events, and the projections set forth under “The Business Combination
Proposal - Summary of CHAC Financial Analysis” should not be relied upon as such.
The
projections were prepared by management of CHAC based, in part, on certain information furnished by BiomX. The prospective financial
information was not prepared with a view toward public disclosure nor was it prepared with a view toward compliance with the guidelines
established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial
information, or GAAP. Neither the independent registered public accounting firm of CHAC or BiomX nor any other independent accounts
has audited, reviewed, compiled, examined or performed any procedures with respect to the accompanying unaudited prospective financial
information for the purpose of its inclusion herein, and accordingly, neither the independent registered public accounting firm
of CHAC or BiomX, nor any other independent accountant expresses an opinion or provides any form of assurance with respect thereto
for the purpose of this proxy statement. Due to inherent uncertainties in financial projections of any kind, stockholders are
cautioned not to place undue reliance, if any, on the projections.
The
projections are subjective in nature and may not be realized.
CHAC’s
projections are inherently subjective in nature and susceptible to interpretation and, accordingly, such projections may not
be achieved. The projections also reflect numerous assumptions made by CHAC management, including material assumptions
regarding, among other things, timing of clinical trials, patient enrollment, timing of receipt of regulatory approvals that
may be needed, characterization of the product candidates, the timing of, and amounts of, any royalty payments,
milestone payments or other payments due to third parties by BiomX, the entry by BiomX into license or collaboration
agreements, market size, commercial efforts, industry performance, general business and economic conditions and numerous
other matters that may not be realized and are subject to significant uncertainties and contingencies, all of which are
difficult to predict and many of which are beyond the control of the preparing party. Accordingly, there can be no assurance
that the assumptions made in preparing the projections will be realized. There may be differences between actual and
projected results, and the differences may be material. The risk that these uncertainties and contingencies could cause the
assumptions to fail to be reflective of actual results is further increased by the length of time over which these
assumptions apply. The failure to achieve assumptions and projections in early periods could have a compounding effect on the
projections shown for the later periods. Thus, any such failure of an assumption or projection to be reflective of actual
results in an early period could have a greater effect on the projected results failing to be reflective of actual events in
later periods. BiomX is a preclinical stage company, without any product that has received regulatory or marketing approval,
and as discussed in this proxy statement, its business is subject to numerous risks. Moreover, 12-year projections in the
context of a preclinical stage company are inherently unrealizable given the many variables, especially in later years, that
may affect results.
All
of these assumptions involve variables making them difficult to predict, and some are beyond the control of BiomX and CHAC.
Although BiomX’s and CHAC’s management believes that there was a reasonable basis for the projections and
underlying assumptions, any assumptions for near-term projected cases remain uncertain, and such uncertainty increases with
the length of the projected period. The projections are forward-looking statements and are subject to risks and
uncertainties. See the section titled “Special Note Regarding Forward-Looking Statements” on page 72. For
a discussion of the CHAC projections, please see the section titled “The Business Combination Proposal — Summary of
CHAC Financial Analysis” beginning on page 82.
In
developing the CHAC projections provided to the CHAC Board of Directors, CHAC management made numerous material estimates with respect
to BiomX for the years ending December 31, 2019 through 2030.
The projections prepared by CHAC management
were based on estimates from both discussions with, and materials provided, by BiomX for the years from 2019 to 2022, which themselves
were based on numerous assumptions. Additionally, such estimates were then used by CHAC to extrapolate certain prospective financial
results based on CHAC management’s assessment of comparable companies and industry metrics. The selected summary of the adjusted
and unadjusted CHAC projections that were made available to the CHAC Board of Directors and which CHAC management’s estimates
were based upon can be found in the section titled “The Business Combination Proposal - Summary of CHAC Financial Analysis”
beginning on page 82. CHAC management did not consider ranges for various financial measures but rather considered in deriving
these measures, peak sales amounts, which may reduce the utility in later years of the prospective financial results.
Risks
Related to Our Common Stock
The
price of our common stock likely will be volatile like the stocks of other biotechnology companies.
The
stock markets in general and the markets for biotechnology stocks have experienced extreme volatility. The market for the common
stock of smaller companies such as ours is characterized by significant price volatility when compared to the shares of larger,
more established companies that trade on a national securities exchange and have large public floats, and we expect that our share
price will be more volatile than the shares of such larger, more established companies for the indefinite future.
In
addition to the factors discussed in this “Risk Factors” section, price declines in our common stock could also result
from general market and economic conditions and a variety of other factors, including:
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adverse
results or delays in our clinical trials;
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adverse
actions taken by regulatory agencies with respect to our product candidates, clinical trials or the manufacturing processes
of our product candidates;
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announcements
of technological innovations, patents or new products by our competitors;
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regulatory
developments in the United States and foreign countries;
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any
lawsuit involving us or our product candidates;
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announcements
concerning our competitors, or the biotechnology or pharmaceutical industries in general;
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developments
concerning any strategic alliances or acquisitions we may enter into;
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actual
or anticipated variations in our operating results;
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changes
in recommendations by securities analysts or lack of analyst coverage;
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deviations
in our operating results from the estimates of analysts;
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our
inability, or the perception by investors that we will be unable, to continue to meet all applicable requirements for continued
listing of our common stock on the NYSE American Stock Exchange, and the possible delisting of our common stock;
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sales
of our common stock by our executive officers, directors and principal stockholders or sales of substantial amounts of common
stock; and
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loss
of any of our key scientific or management personnel.
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In
the past, following periods of volatility in the market price of a particular company’s securities, litigation has often
been brought against that company. Any such lawsuit could consume resources and management time and attention, which could adversely
affect our business.
If
the Business Combination’s benefits do not meet the expectations of investors or securities analysts, the market price of
our securities may decline.
If
the benefits of the Business Combination do not meet the expectations of investors or securities analysts, the market price of
our securities may decline. The market values of our securities at the time of the Business Combination may vary significantly
from their prices on the date the Merger Agreement was executed, the date of this proxy statement, or the date on which our
stockholders vote on the Business Combination.
In
addition, following the Business Combination, fluctuations in the price of our securities could contribute to the loss of all
or part of your investment. Prior to the Business Combination, there has not been a public market for BiomX’s securities.
Accordingly, the valuation ascribed to BiomX’s ordinary shares in the Business Combination may not be indicative of the
actual price that will prevail in the trading market following the Business Combination. If an active market for our securities
develops and continues, the trading price of our securities following the Business Combination could be volatile and subject to
wide fluctuations in response to various factors, some of which are beyond our control. Our securities may trade at prices significantly
below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience
a further decline, which could have a material adverse effect on your investment in our securities.
If
securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and
trading volume could decline.
The
trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish
about us, our business, our market, or our competitors. Securities and industry analysts do not currently, and may never, publish
research on the company. Because the Business Combination will result in BiomX merging with a special purpose acquisition company (“SPAC”), research coverage from industry
analysts may be limited. If no securities or industry analysts commence coverage of our company, our stock price and trading volume
could be negatively impacted. If any of the analysts who may cover the company change their recommendation regarding our stock
adversely, provide more favorable relative recommendations about our competitors or publishes inaccurate or unfavorable research
about our business, our stock price would likely decline. If any analyst who may cover us ceases coverage of us or fails to publish
reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.
We
may fail to realize any or all of the anticipated benefits of the Business Combination.
The
success of the Business Combination will depend, in part, on our ability to successfully manage and deploy the cash received upon
the consummation of the Business Combination. Although we intend to use the cash received upon the consummation of the Business
Combination for the continued development of our product candidates, there can be no assurance that we will be able to achieve
our intended objectives.
We
have broad discretion in the use of our existing cash, cash equivalents and the net proceeds from the Business Combination and
may not use them effectively.
Our
management will have broad discretion in the application of our existing cash, cash equivalents and the net proceeds from the
Business Combination, and you will not have the opportunity as part of your investment decision to assess whether such proceeds
are being used appropriately. Because of the number and variability of factors that will determine our use of our existing cash,
cash equivalents and the net proceeds from the Business Combination, their ultimate use may vary substantially from their currently
intended use. Our management might not apply our cash resources in ways that ultimately increase the value of your investment.
The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest our cash
resources in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to
our stockholders. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we
may fail to achieve expected financial results, which could cause our stock price to decline.
The
price of our common stock may be subject to increased volatility and the Rule 144 resale exemption will be unavailable for our
securities because the Business Combination will result in a merger with a SPAC.
The
Business Combination will result in us merging with a SPAC, which can cause additional volatility in the price of our common stock.
We expect that the price of our common stock and of that of SPACs in general may be more volatile compared to the stock price
of an operating company.
Rule
144 of the Securities Act provides a safe harbor under which holders of restricted securities and affiliates of an issuer may
resell their securities into the public market. However, Rule 144 is unavailable for securities of former SPACs until, among other
things, twelve months have elapsed since the former SPAC has filed “Form 10 information” with the SEC. After the completion
of the Business Combination, our stockholders may not rely on Rule 144 for resales of their common stock for a minimum of one
year, which can impair the ability to resell our common stock at a favorable return.
The
current unavailability and potential future unavailability of the Rule 144 resale exemption for our common stock could have an
adverse effect on the market price of our common stock.
A
significant number of shares of our common stock are subject to issuance upon exercise of outstanding warrants and options, which
upon such exercise may result in dilution to our security holders.
Outstanding public warrants to purchase
an aggregate of 3,500,000 shares of our common stock will become exercisable on December 13, 2019, at a price of $11.50 per whole
share, subject to adjustment. Warrants may be exercised only for a whole number of shares of CHAC’s common stock. To the
extent such warrants are exercised, additional shares of our common stock will be issued, which will result in dilution to the
then existing holders of common stock of CHAC and increase the number of shares eligible for resale in the public market. Sales
of substantial numbers of such shares in the public market could adversely affect the market price of our common stock.
In addition, as of the date of this
proxy statement, BiomX had outstanding vested and unvested options to purchase 1,260,154 BiomX shares and vested and unvested
warrants to purchase 248,998 BiomX shares. The BiomX vested and unvested options and warrants outstanding immediately prior
to the closing of the Business Combination will be converted into options and warrants, respectively, to purchase CHAC Shares
upon the closing of the Business Combination. To the extent any of these options or warrants are exercised, additional CHAC
Shares will be issued that will generally be eligible for resale in the public market (subject to limitations under Rule 144
under the Securities Act with respect to shares held by our affiliates), which will result in dilution to our security
holders. The issuance of additional securities could also have an adverse effect on the market price of our common stock.
We
have never paid dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable
future.
We
have never declared or paid cash dividends on our common stock. We do not anticipate paying any cash dividends on our common stock
in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and
growth of our business. As a result, capital appreciation, if any, of our common stock will be our stockholders’ sole source
of gain for the foreseeable future.
Sales
of a substantial number of shares of our common stock in the public market by our existing stockholders could cause our stock
price to decline.
Sales
of a substantial number of shares of our common stock in the public market or the perception that these sales might occur, could
depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity
securities. We are unable to predict the effect that sales may have on the prevailing market price of our common stock.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
proxy statement contains forward-looking statements. Forward-looking statements provide our current expectations or forecasts
of future events. Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions,
assumptions and other statements that are not historical facts. Words or phrases such as “anticipate,” “believe,”
“continue,” “estimate,” “expect,” “intend,” “may,” “ongoing,”
“plan,” “potential,” “predict,” “project,” “will” or similar words
or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words
does not necessarily mean that a statement is not forward-looking. Examples of forward-looking statements in this proxy statement
include, but are not limited to, statements regarding our disclosure concerning BiomX’s operations, cash flows and financial
position.
Forward-looking
statements appear in a number of places in this proxy statement including, without limitation, in the sections entitled “Management’s
Discussion and Analysis of Financial Conditions and Results of Operations of BiomX Ltd.,” and “BiomX Ltd.’s
Business.” The risks and uncertainties include, but are not limited to:
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BiomX’s
limited operating history;
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the
ability to generate revenues, and raise sufficient financing to meet working capital
requirements;
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the
unpredictable timing and cost associated with BiomX’s approach to developing product
candidates using phage technology;
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the
FDA’s classification of BiomX’s BX001 product candidate as a drug or cosmetic
and the impact of changing regulatory requirements on BiomX’s ability to develop
and commercialize BX001;
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obtaining
FDA acceptance of any non-U.S. clinical trials of product candidates;
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the ability
to pursue and effectively develop new product opportunities and acquisitions and to obtain
value from such product opportunities and acquisitions;
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penalties
and market withdrawal associated with any unanticipated problems with product candidates
and failure to comply with labeling and other restrictions;
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expenses
associated with BiomX’s compliance with ongoing regulatory obligations and successful
continuing regulatory review;
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market
acceptance of BiomX’s product candidates and ability to identify or discover additional
product candidates;
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BiomX’s
ability to obtain high titers for specific phage cocktails necessary for preclinical
and clinical testing;
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the availability
of specialty raw materials;
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the ability
of BiomX’s product candidates to demonstrate requisite safety and tolerability
for cosmetics, safety and efficacy for drug products, or safety, purity and potency for
biologics without causing adverse effects;
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the success
of expected future advanced clinical trials of BiomX’s product candidates;
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the ability
to obtain required regulatory approvals;
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the ability
to enroll patients in clinical trials and achieve anticipated development milestones
when expected;
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delays
in developing manufacturing processes for BiomX’s product candidates;
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competition
from similar technologies, products that are more effective, safer or more affordable
than BiomX’s product candidates or products that obtain marketing approval before
BiomX’s product candidates;
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the impact
of unfavorable pricing regulations, third-party reimbursement practices or health care
reform initiatives on BiomX’s ability to sell product candidates or therapies profitably;
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protection
of BiomX’s intellectual property rights and compliance with the terms and conditions
of current and future licenses with third parties;
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infringement
on the intellectual property rights of third parties and claims for remuneration or royalties
for assigned service invention rights;
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the ability
to acquire, in-license or use proprietary rights held by third parties necessary
to BiomX’s product candidates or future development candidates;
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ethical,
legal and social concerns about synthetic biology and genetic engineering that may adversely
affect market acceptance of BiomX’s product candidates;
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reliance
on third-party collaborators;
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the ability
to manage the growth of the business;
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the ability
to attract and retain key employees or to enforce the terms of noncompetition agreements
with employees;
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the failure
to comply with applicable laws and regulations;
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potential
security breaches, including cybersecurity incidents;
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political,
economic and military instability in the State of Israel;
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costs
associated with being a public company; and
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other
factors discussed in the section of this proxy statement entitled “Risk Factors”
beginning on page 15.
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Forward-looking
statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could
cause actual results to differ materially from those expected or implied by the forward-looking statements. Actual results could
differ materially from those anticipated in forward-looking statements for many reasons, including the factors described in “Risk
Factors” in this proxy statement. Accordingly, you should not rely on these forward-looking statements, which speak only
as of the date of this proxy statement. We undertake no obligation to publicly revise any forward-looking statement to reflect
circumstances or events after the date of this proxy statement or to reflect the occurrence of unanticipated events. You should,
however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this proxy statement.
Special
meeting OF CHAC STOCKHOLDERS
General
We are furnishing this proxy statement
to the CHAC stockholders as part of the solicitation of proxies by our Board of Directors for use at the special meeting of CHAC
stockholders to be held on October 23, 2019 and at any adjournment or postponement thereof. This proxy statement is first being
furnished to our stockholders on or about September 23, 2019 in connection with the vote on the Business Combination Proposal,
the two Amendment Proposals, the NYSE Proposal and the Business Combination Adjournment Proposal. This document provides you with
the information you need to know to be able to vote or instruct your vote to be cast at the special meeting.
Date,
Time and Place
The special meeting of stockholders will be held on October
23, 2019 at 10:00 a.m., at the offices of Loeb & Loeb LLP, 345 Park Avenue, New York, NY 10154, or such other date, time
and place to which such meeting may be adjourned or postponed.
Purpose
of the Special Meeting of CHAC Stockholders
At
the special meeting of stockholders, we are asking holders of CHAC Shares to approve the following proposals:
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To
approve the Merger Agreement, dated as of July 16, 2019 (the “Merger Agreement”) by and among CHAC, BiomX Ltd. (“BiomX”)
and CHAC Merger Sub Ltd. (the “Merger Sub”), and the transactions contemplated thereby, (collectively referred to
as the “Business Combination”). This proposal is referred to as the “Business Combination Proposal” or
“Proposal No. 1.”
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To approve the
amendment of the Amended and Restated Certificate of Incorporation of CHAC to increase the number of authorized shares of
common stock from 30,000,000 to 60,000,000. This proposal is referred to as the “Share Increase Proposal” or
“Proposal No. 2.”
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To approve
the amendment of the Amended and Restated Certificate of Incorporation to classify the
Board of Directors into three classes. This proposal is referred to as the “Classified
Board Proposal” or “Proposal No. 3,” and together with the Share Increase
Proposal, they are referred to as the “Amendment Proposals.”
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To approve the Chardan Healthcare Acquisition Corp.
2019 Omnibus Long-Term Incentive Plan. This proposal is referred to as the “Equity Plan Adoption Proposal” or “Proposal
No. 4.”
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To
approve the issuance of more than 20% of the issued and outstanding common stock of CHAC pursuant to the terms of the Merger Agreement,
as required by NYSE American Listed Company Guide Sections 712 and 713. This proposal is referred to as the “NYSE Proposal”
or “Proposal No. 5.”
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To
approve the adjournment of the special meeting, if necessary or advisable, in the event CHAC does not receive the requisite stockholder
vote to approve the Business Combination. This proposal is called the “Business Combination Adjournment Proposal”
or “Proposal No. 6.”
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Recommendation of the CHAC Board of Directors to Stockholders
After careful consideration of the terms
and conditions of the Merger Agreement, the Board of Directors of CHAC has determined that the Business Combination and the transactions
contemplated thereby are fair to and in the best interests of CHAC and its stockholders. In reaching its decision with respect
to the Business Combination and the transactions contemplated thereby, the Board of Directors of CHAC reviewed various industry
and financial data and the due diligence and evaluation materials provided by BiomX. The Board of Directors did not obtain a fairness
opinion on which to base its assessment. CHAC’s Board of Directors recommends that CHAC stockholders vote:
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FOR the Business Combination Proposal;
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FOR
the Share Increase Proposal;
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FOR
the Classified Board Proposal;
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FOR
the Equity Plan Adoption Proposal;
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FOR the NYSE Proposal; and
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FOR the Business Combination Adjournment Proposal.
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CHAC’s
Board of Directors have interests that may be different from or in addition to your interests as a stockholder. See “The
Business Combination Proposal — Interests of Certain Persons in the Business Combination” in this proxy statement
for further information.
Record
Date; Who Is Entitled to Vote
We have fixed the close of business
on September 17, 2019, as the “record date” for determining those CHAC stockholders entitled to notice of and to vote
at the special meeting. As of the close of business on September 17, 2019, there were 8,750,000 shares of common stock of CHAC
outstanding and entitled to vote. Each holder of CHAC Shares is entitled to one vote per share on each of the Business Combination
Proposal, the two Amendment Proposals, the NYSE Proposal and the Business Combination Adjournment Proposal.
As of September 17, 2019, CHAC’s
Sponsor and other initial stockholders, either directly or beneficially, owned and were entitled to vote 1,750,000 shares of common
stock, or approximately 20% of CHAC’s outstanding common stock. With respect to the Business Combination, CHAC’s Sponsor
and other initial stockholders have agreed to vote their respective shares of common stock acquired by them in favor of the Business
Combination Proposal and related Proposals.
Quorum
and Required Vote for Stockholder Proposals
A
quorum of CHAC stockholders is necessary to hold a valid meeting. A quorum will be present at the special meeting of CHAC stockholders
if a majority of the CHAC Shares issued and outstanding and entitled to vote at the special meeting is represented in person or
by proxy. Abstentions present in person and by proxy will count as present for the purposes of establishing a quorum but broker
non-votes will not.
Approval
of the Business Combination Proposal, the Equity Plan Adoption Proposal, the NYSE Proposal, and the Business Combination Adjournment
Proposal will require the affirmative vote of the holders of a majority of the issued and outstanding common stock of CHAC present
and entitled to vote at the special meeting. Approval of each of the Amendment Proposals will require the approval of the holders
of a majority of the CHAC Shares entitled to vote at the special meeting. Attending the special meeting either in person or by
proxy and abstaining from voting will have the same effect as voting against all the proposals and, assuming a quorum is present,
broker non-votes will have no effect on the Proposals, except that a broker non-vote will have the same effect as voting against
each of the Amendment Proposals.
Voting
Your Shares
Each
CHAC share of common stock that you own in your name entitles you to one vote for each proposal on which such shares are entitled
to vote at the special meeting. Your proxy card shows the number of common stock that you own.
There
are two ways to ensure that your CHAC Shares are voted at the special meeting:
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You
can cause your shares to be voted by signing and returning the enclosed proxy card. If
you submit your proxy card, your “proxy,” whose name is listed on the proxy
card, will vote your shares as you instruct on the proxy card. If you sign and return
the proxy card but do not give instructions on how to vote your shares, your shares will
be voted, as recommended by our Board of Directors, “FOR” the Business Combination
Proposal, each of the two Amendment Proposals, the NYSE Proposal and the Business Combination
Adjournment Proposal. Votes received after a matter has been voted upon at the special
meeting will not be counted.
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You
can attend the special meeting and vote in person. We will give you a ballot when you
arrive. However, if your shares are held in the name of your bank, broker or other nominee,
you must get a proxy from the bank, broker or other nominee. That is the only way we
can be sure that the bank, broker or other nominee has not already voted your shares.
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IF YOU RETURN YOUR PROXY CARD WITHOUT AN
INDICATION OF HOW YOU WISH TO VOTE, YOUR SHARES WILL BE VOTED IN FAVOR OF THE BUSINESS COMBINATION PROPOSAL (AS WELL AS THE OTHER
PROPOSALS). IN ORDER TO REDEEM YOUR SHARES, YOU MUST CONTINUE TO HOLD YOUR SHARES THROUGH THE CLOSING DATE OF THE BUSINESS COMBINATION
AND TENDER YOUR PHYSICAL STOCK CERTIFICATE TO OUR TRANSFER AGENT AT LEAST TWO BUSINESS DAYS PRIOR TO THE DATE OF THE SPECIAL MEETING.
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 ELECTRONICALLY TRANSFER YOUR SHARES TO THE DTC ACCOUNT OF CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
OUR TRANSFER AGENT, AT LEAST TWO DAYS PRIOR TO THE DATE OF THE SPECIAL MEETING.
Revoking
Your Proxy
If
you give a proxy, you may revoke it at any time before it is exercised by doing any one of the following:
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you
may send another proxy card with a later date;
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if
you are a record holder, you may notify our corporate secretary in writing before the
special meeting that you have revoked your proxy at Chardan Healthcare Acquisition Corp.,
17 State St., Floor 21, New York, NY 10004, Attn: Corporate Secrtary; or
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you
may attend the special meeting, revoke your proxy, and vote in person, as indicated above.
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Who
Can Answer Your Questions About Voting Your Shares
If you have any questions
about how to vote or direct a vote in respect of your common stock, you may call Morrow Sodali, our proxy solicitor, at (800)
662-5200, or CHAC at 646-465-9000.
No
Additional Matters May Be Presented at the Special meeting
This
special meeting has been called only to consider the approval of the Business Combination. Under CHAC’s Amended and Restated
Certificate of Incorporation, other than procedural matters incident to the conduct of the special meeting, no other matters may
be considered at the special meeting if they are not included in the notice of the special meeting.
Redemption
Rights
Pursuant
to CHAC’s Amended and Restated Certificate of Incorporation, a holder of CHAC Shares may demand that CHAC redeem such common
stock for cash in connection with a business combination. You may not elect to redeem your shares prior to the completion
of a business combination.
If you are a public stockholder
and you seek to have your shares redeemed, you must (i) demand, no later than 5:00 p.m., Eastern time on October 21, 2019 (two
(2) business days before the special meeting), that CHAC redeem your shares into cash; and (ii) submit your request in writing
to CHAC’s transfer agent, at the address listed at the end of this section and delivering your shares to CHAC’s transfer
agent physically or electronically using the DWAC system at least two (2) business days prior to the vote at the meeting. In order
to validly request redemption, you must either make a request for redemption on the proxy card or separately send a request in
writing to CHAC’s transfer agent. The proxy card or separate request must be signed by the applicable stockholder in order
to validly request redemption. A stockholder is not required to submit a proxy card or vote in order to validly exercise redemption
rights.
You may tender the CHAC Shares for which
you are electing redemption by two (2) business days before the special meeting by either:
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Delivering
certificates representing CHAC’s Shares to CHAC’s transfer agent, or
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Delivering
the CHAC Shares electronically through the DWAC system.
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CHAC stockholders will
be entitled to redeem their CHAC Shares for a full pro rata share of the trust account (currently anticipated to be no less than
approximately $10.16 per share) net of taxes payable.
Any
corrected or changed written demand of redemption rights must be received by CHAC’s transfer agent two (2) business days
prior to the special meeting. No demand for redemption will be honored unless the holder’s shares have been delivered
(either physically or electronically) to the transfer agent at least two (2) business days prior to the vote at the meeting.
Public stockholders may seek to have
their shares redeemed regardless of whether they vote for or against the Business Combination and whether or not they are holders
of CHAC shares as of the Record Date. Any public stockholder who holds shares of CHAC on or before October 21, 2019 (two (2)
business days before the special meeting) will have the right to demand that his, her or its shares be redeemed for a pro rata
share of the aggregate amount then on deposit in the trust account, less any taxes then due but not yet paid, at the consummation
of the Business Combination.
In
connection with tendering your shares for redemption, you must elect either to physically tender your share certificates to CHAC’s
transfer agent or deliver your shares to the transfer agent electronically using The Depository Trust Company’s DWAC (Deposit/Withdrawal
At Custodian) System, in each case, by the business day prior to the special meeting.
Through the DWAC system, this electronic
delivery process can be accomplished by contacting your broker and requesting delivery of your shares through the DWAC system.
Delivering shares physically may take significantly longer. In order to obtain a physical stock certificate, a stockholder’s
broker and/or clearing broker, DTC, and CHAC’s transfer agent will need to act together to facilitate this request. 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 the tendering broker $45 and the broker would determine
whether or not to pass this cost on to the redeeming holder. It is CHAC’s understanding that stockholders should generally
allot at least two weeks to obtain physical certificates from the transfer agent. CHAC does not have any control over this process
or over the brokers or DTC, and it may take longer than two weeks to obtain a physical stock certificate. Stockholders who request
physical stock certificates and wish to redeem may be unable to meet the deadline for tendering their CHAC Shares before exercising
their redemption rights and thus will be unable to redeem their CHAC Shares.
In the event that a stockholder tenders
its CHAC Shares and decides prior to the consummation of the Business Combination that it does not want to redeem its CHAC Shares,
the stockholder may withdraw the tender. In the event that a stockholder tenders CHAC Shares and the business combination is not
completed, these CHAC Shares will not be redeemed for cash and the physical certificates representing these CHAC Shares will be
returned to the stockholder promptly following the determination that the Business Combination will not be consummated. CHAC anticipates
that a stockholder who tenders CHAC Shares for redemption in connection with the vote to approve the Business Combination would
receive payment of the redemption price for such CHAC Shares soon after the completion of the Business Combination.
If properly demanded by CHAC’s
public stockholders, CHAC will redeem each share into a pro rata portion of the funds available in the Trust Account, calculated
as of two business days prior to the anticipated consummation of the Business Combination. As of the record date, this would amount
to approximately $10.14 per share. If you exercise your redemption rights, you will be exchanging your CHAC Shares for cash
and will no longer own the CHAC Shares.
Notwithstanding the foregoing, a holder
of the public shares, together with any affiliate of his or her or any other person with whom he or she is acting in concert or
as a “group” (as defined in Section 13(d)-(3) of the Securities Exchange Act of 1934 (the “Exchange Act”)
will be restricted from seeking redemption rights with respect to more than 20% of the CHAC Shares.
If
too many public stockholders exercise their redemption rights, we may not be able to meet certain condition, and as a result,
would not be able to proceed with the Business Combination.
Tendering
Common Stock Share Certificates in connection with Redemption Rights
CHAC is requiring the CHAC public stockholders
seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,”
to either tender their certificates to CHAC’s transfer agent, or to deliver their shares to the transfer agent electronically
using Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at the holder’s option at least two
(2) business days prior to the special meeting. 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 the
tendering broker $45.00 and it would be up to the broker whether to pass this cost on to the redeeming holder. However, this fee
would be incurred regardless of whether CHAC requires holders seeking to exercise redemption rights to tender their CHAC Shares.
The need to deliver CHAC Shares is a requirement of exercising redemption rights regardless of the timing of when such delivery
must be effectuated.
Any
request for redemption, once made, may be withdrawn at any time up to the business day immediately preceding the consummation
of the proposed Business Combination. Furthermore, if a stockholder delivered his certificate for redemption and subsequently
decided prior to the date immediately preceding the consummation of the proposed Business Combination not to elect redemption,
he may simply request that the transfer agent return the certificate (physically or electronically).
A
redemption payment will only be made in the event that the proposed Business Combination is consummated. If the proposed Business
Combination is not completed for any reason, then public stockholders who exercised their redemption rights would not be entitled
to receive the redemption payment. In such case, CHAC will promptly return the share certificates to the public stockholder.
United States Federal Income Taxation Relating
to Redeeming Stockholders
General
This section is a general summary of
the material U.S. federal income tax provisions relating to the redemption of CHAC’s common stock in connection with a business
combination. This section does not address any aspect of U.S. federal gift or estate tax, or the state, local or non-U.S. tax
consequences of an investment in our securities, nor does it provide any actual representations as to any tax consequences of
the acquisition, ownership or disposition of our securities.
The discussion below of the U.S. federal
income tax consequences to “U.S. Holders” will apply to a beneficial owner of our securities that is for U.S. federal
income tax purposes:
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an individual citizen or resident of the
United States;
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a corporation (or other entity treated as
a corporation) that is created or organized (or treated as created or organized) in or under the laws of the United States,
any state thereof or the District of Columbia
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an estate whose income is includible in gross
income for U.S. federal income tax purposes regardless of its source, or
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a trust if (i) a U.S. court can exercise
primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial
decisions of the trust, or (ii) it has a valid election in effect under applicable U.S. Treasury regulations to be treated
as a U.S. person.
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This discussion is based on the Internal
Revenue Code of 1986, as amended (the “Code”), its legislative history, Treasury regulations promulgated thereunder,
published rulings and court decisions, all as currently in effect. These authorities are subject to change or differing interpretations,
possibly on a retroactive basis.
This discussion does not address all
aspects of U.S. federal income taxation that may be relevant to any particular holder based on such holder’s individual
circumstances. In particular, this discussion considers only the redemption of our shares of common stock holders who own and
hold our securities as capital assets within the meaning of Section 1221 of the Code, and does not address the potential application
of the alternative minimum tax. In addition, this discussion does not address the U.S. federal income tax consequences to holders
that are subject to special rules, including:
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financial institutions or financial services
entities;
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broker-dealers;
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taxpayers that are subject to the mark-to-market
accounting rules under Section 475 of the Code;
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tax-exempt entities;
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governments or agencies or instrumentalities
thereof;
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insurance companies;
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regulated investment companies;
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regulated investment companies;
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expatriates or former long-term residents
of the United States;
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persons that actually or constructively own
5 percent or more of our voting shares;
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persons that acquired our securities pursuant
to an exercise of employee share options, in connection with employee share incentive plans or otherwise as compensation;
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persons that hold our securities as part
of a straddle, constructive sale, hedging, conversion or other integrated transaction;
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persons whose functional currency is not
the U.S. dollar;
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controlled foreign corporations; or
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passive foreign investment companies.
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This discussion does not address any
aspect of U.S. federal non-income tax laws, such as gift or estate tax laws, state, local or non-U.S. tax laws or, except as discussed
herein, any tax reporting obligations of a holder of our securities. Additionally, this discussion does not consider the tax treatment
of partnerships or other pass-through entities or persons who hold our securities through such entities. If a partnership (or
other entity classified as a partnership for U.S. federal income tax purposes) is the beneficial owner of our securities, the
U.S. federal income tax treatment of a partner in the partnership generally will depend on the status of the partner and the activities
of the partnership.
We have not sought, and will not seek,
a ruling from the IRS or an opinion of counsel as to any U.S. federal income tax consequence described herein. The IRS may disagree
with the descriptions herein, and its determination may be upheld by a court. Moreover, there can be no assurance that future
legislation, regulations, administrative rulings or court decisions will not adversely affect the accuracy of the statements in
this discussion.
THIS DISCUSSION IS ONLY A SUMMARY OF
THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE REDEMPTION OF OUR SECURITIES IN CONNECTION WITH THE BUSINESS COMBINATION.
IT DOES NOT PROVIDE ANY ACTUAL REPRESENTATIONS AS TO ANY TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR
SECURITIES AND WE HAVE NOT OBTAINED ANY OPINION OF COUNSEL WITH RESPECT TO SUCH TAX CONSEQUENCES. AS A RESULT, EACH PROSPECTIVE
INVESTOR IN OUR SECURITIES IS URGED TO CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO SUCH INVESTOR
OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR SECURITIES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, AND
NON-U.S. TAX LAWS, AS WELL AS U.S. FEDERAL TAX LAWS AND ANY APPLICABLE TAX TREATIES.
Redemption Of Common Stock
If a U.S. Holder redeemd common stock
into the right to receive cash pursuant to the exercise of a shareholder redemption right, for U.S. federal income tax purposes,
such conversion or sale generally will be treated as a redemption and will be subject to the following rules. If the redemption
qualifies as a sale of the common stock under Section 302 of the Code:
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a U.S. Holder generally will recognize capital gain
or loss in an amount equal to the difference between the amount realized and the U.S. Holder’s adjusted tax basis in the
securities.
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The regular U.S. federal income tax rate on capital
gains recognized by U.S. Holders generally is the same as the regular U.S. federal income tax rate on ordinary income, except
that under tax law currently in effect long-term capital gains recognized by non-corporate U.S. Holders are generally subject
to U.S. federal income tax at reduced rates. Capital gain or loss will constitute long-term capital gain or loss if the U.S. Holder’s
holding period for the securities exceeds one year. The deductibility of capital losses is subject to various limitations. U.S.
Holders who recognize losses with respect to a disposition of our securities should consult their own tax advisors regarding the
tax treatment of such losses.
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Whether redemption of our shares qualifies
for sale treatment will depend largely on the total number of shares of CHAC common stock treated as held by such U.S. Holder.
The redemption of common stock generally will be treated as a sale or exchange of common stock (rather than as a distribution)
if the receipt of cash upon the redemption (i) is “substantially disproportionate” with respect to a U.S. Holder,
(ii) results in a “complete termination” of such holder’s interest in us or (iii) is “not essentially
equivalent to a dividend” with respect to such holder. These tests are explained more fully below.
In determining whether any of the foregoing
tests are satisfied, a U.S. Holder must take into account not only the CHAC common stock actually owned by such holder, but also
our the CHAC common stock that is constructively owned by such holder. A U.S. Holder may constructively own, in addition to our
common stock owned directly, common stocl owned by related individuals and entities in which such holder has an interest or that
have an interest in such holder, as well as any common stocl such holder has a right to acquire by exercise of an option, which
would generally include common stock which could be acquired pursuant to the exercise of warrants. In order to meet the substantially
disproportionate test, the percentage of our issued and outstanding voting shares actually and constructively owned by a U.S.
Holder immediately following the redemption of our common stock must, among other requirements, be less than 80% of the percentage
of our issued and outstanding voting and common stock actually and constructively owned by such holder immediately before the
redemption. There will be a complete termination of a U.S. Holder’s interest if either (i) all of our common stock is actually
and constructively owned by such U.S. Holder are redeemed or (ii) all of our common stock actually owned by such U.S. Holder is
redeemed and such holder is eligible to waive, and effectively waives, in accordance with specific rules, the attribution of shares
owned by family members and such holder does not constructively own any other shares. The redemption of the common stock will
not be essentially equivalent to a dividend if such redemption results in a “meaningful reduction” of a U.S. Holder’s
proportionate interest in us. Whether the redemption will result in a meaningful reduction in a U.S. Holder’s proportionate
interest in us will depend on the particular facts and circumstances. However, the IRS has indicated in a published ruling that
even a small reduction in the proportionate interest of a small minority shareholder in a publicly held corporation who exercises
no control over corporate affairs may constitute such a “meaningful reduction.” U.S. Holders should consult with their
own tax advisors as to the tax consequences of any such redemption.
If none of the foregoing tests are satisfied,
then the redemption may be treated as a distribution a U.S. Holder generally will be required to include in gross income as dividends
the amount received. Such amount will be taxable to a corporate U.S. holder at regular rates and will not be eligible for the
dividends-received deduction generally allowed to domestic corporations in respect of dividends received from other domestic corporations.
Distributions in excess of such earnings and profits generally will be applied against and reduce the U.S. Holder’s basis
in its common stock (but not below zero) and, to the extent in excess of such basis, will be treated as gain from the sale or
exchange of such common stock. With respect to non-corporate U.S. Holders, dividends may be subject to the lower applicable long-term
capital gains tax rate (see above) if our common stock is readily tradeable on an established securities market in the United
States and certain other requirements are met. U.S. Holders should consult their own tax advisors regarding the availability of
the lower rate for any cash dividends paid with respect to our common stock. After the application of those rules, any remaining
tax basis a U.S. Holder has in the redeemed common stock will be added to the adjusted tax basis in such holder’s remaining
common stock. If there are no remaining common stock, a U.S. Holder should consult its own tax advisors as to the allocation of
any remaining basis.
Certain U.S. Holders may be subject
to special reporting requirements with respect to a redemption of common stock, and such holders should consult with their own
tax advisors with respect to their reporting requirements.
Appraisal
Rights
Appraisal
rights are not available to holders of CHAC Shares in connection with the proposed Business Combination.
Proxies
and Proxy Solicitation Costs
We are soliciting proxies
on behalf of our Board of Directors. This solicitation is being made by mail but also may be made by telephone or in person. CHAC
and its directors, officers and employees may also solicit proxies in person, by telephone or by other electronic means. CHAC
has engaged Morrow Sodali to assist in the solicitation of proxies for the Special Meeting. Any solicitation made and information
provided in such a solicitation will be consistent with the written proxy statement and proxy card.
CHAC will bear the entire cost of the
proxy solicitation, including the preparation, assembly, printing, mailing and distribution of the proxy materials. CHAC will
pay Morrow Sodali a fee of $20,000, plus disbursements, reimburse Morrow Sodali for its reasonable out-of-pocket expenses and
indemnify Morrow Sodali and its affiliates against certain claims, liabilities, losses, damages and expenses for their services
as our proxy solicitor. CHAC will ask banks, brokers and other nominees to forward its proxy materials to their principals and
to obtain their authority to execute proxies and voting instructions. CHAC will reimburse them for their reasonable expenses.
If
you send in your completed proxy card, you may still vote your shares in person if you revoke your proxy before it is exercised
at the special meeting.
CHAC
Initial Stockholders
In
March 2018, CHAC issued an aggregate of 1,437,500 CHAC Shares for an aggregate purchase price of $25,000. On September 14, 2018,
the Company effectuated a 1.4-for-1 stock dividend resulting in an aggregate of 2,012,500 Founder Shares outstanding. The Founder Shares included an aggregate of up to 262,500 shares subject to forfeiture by the Sponsor to the extent that the underwriters’
over-allotment was not exercised in full or in part, so that the Sponsor would own 20% of CHAC’s issued and outstanding
shares after the Initial Public Offering (assuming the Sponsor did not purchase any Public Shares in the Initial Public Offering).
The underwriters’ over-allotment option expired unexercised on February 4, 2019. As such, 262,500 CHAC Shares were forfeited
resulting in 1,750,000 Founder Shares issued and outstanding. In addition, in conjunction with the closing of the Initial Public
Offering, an affiliate of the Sponsor purchased 2,900,000 warrants, each warrant to purchase one CHAC Share, at a price of $0.40
per warrant. Each of our officers has a pecuniary interest in the shares held by the Sponsor.
Pursuant
to a registration rights agreement between us and our initial stockholders, those stockholders are entitled to certain registration
rights with respect to the CHAC Shares and CHAC Warrants held by them, as well as the underlying securities. The holders of these
securities are entitled to make up to two demands that CHAC register the sale of such securities. The holders of the initial shares
can elect to exercise these registration rights at any time commencing three months prior to the date on which these shares of
common stock are to be released from escrow. In addition, the holders have certain “piggy-back” registration rights
with respect to registration statements filed subsequent to the consummation of a business combination. CHAC will bear the expenses
incurred in connection with the filing of any such registration statements.
THE
BUSINESS COMBINATION PROPOSAL
The
discussion in this proxy statement of the Business Combination and the principal terms of the Merger Agreement, is subject to,
and is qualified in its entirety by reference to, the Merger Agreement. The full text of the Merger Agreement is attached hereto
as Annex A, which is incorporated by reference herein.
General
Description of the Business Combination
Business
Combination with BiomX; Business Combination Consideration
On the closing date of the transactions
contemplated by the Merger Agreement, the Merger Sub will merge with and into BiomX, with BiomX surviving the merger as a wholly-owned
subsidiary of CHAC. All of the issued and outstanding shares and other equity interests in and of BiomX immediately prior to the
merger will be canceled, and, in consideration therefor, CHAC will issue (or reserve for issuance) 16,625,000 CHAC Shares or options
or warrants to purchase CHAC Shares to BiomX security holders. Additional CHAC Shares will be reserved for issuance in respect
of options to purchase shares of BiomX capital stock that are issued, outstanding and unvested as of immediately prior to the
effective time of the Business Combination. The issuance of CHAC securities to the securityholders of BiomX is being consummated
on a private placement basis, pursuant to Section 4(a)(2) of the Securities Act. As a result of the Business Combination, an aggregate
of 16,625,000 shares of CHAC common stock will be issued (or reserved for issuance) in respect of shares of BiomX capital stock,
and vested options and vested warrants to purchase shares of BiomX capital stock, issued and outstanding immediately prior to
the effective time of the Business Combination. Additional shares of CHAC common stock will be reserved for issuance in respect
of options or warrants to purchase shares of BiomX capital stock that are issued, outstanding and unvested as of immediately prior
to the effective time of the Business Combination.
CHAC
currently has authorized share capital of 31,000,000 shares consisting of 30,000,000 shares of common stock with a par value of
$0.0001 per share and 1,000,000 shares of preferred stock with a par value of $0.0001 per share.
After the Business Combination, assuming
no redemptions of common stock for cash, CHAC’s current public stockholders will own approximately 20% of the outstanding
CHAC Shares, CHAC’s current directors, officers and affiliates will own approximately 7% of the outstanding CHAC Shares,
and the former stockholders of BiomX will own approximately 73% of the outstanding CHAC Shares. Assuming redemption by holders
of 2,062,157 shares of CHAC’s common stock, CHAC public stockholders will own approximately 13% of the outstanding CHAC
Shares, CHAC’s Sponsor and current directors, officers and affiliates will own approximately 5% of the outstanding CHAC
Shares, and the former shareholders of BiomX will own approximately 82% of the outstanding CHAC Shares. Upon consummation of the
Business Combination, BiomX will be a wholly-owned subsidiary of CHAC.
Assuming
the Business Combination Proposal is approved, the parties to the transaction expect to close the Business Combination in October
2019.
Background
of the Business Combination
CHAC was incorporated as a blank check company
on November 1, 2017, under the laws of the state of Delaware, for the purpose of entering into a merger, share exchange, asset
acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses or entities,
which we refer to as a “target business.” CHAC’s efforts to identify a prospective target business were not limited
to any particular industry or geographic location.
On
December 18, 2018, CHAC consummated the Initial Public Offering of 7,000,000 Units. The Units sold in the Initial Public
Offering were sold at an offering price of $10.00 per Unit, generating total gross proceeds of $70,000,000. Chardan Capital
Markets LLC. acted as sole book-running manager of the Initial Public Offering. The securities in the offering were
registered under the Securities Act on a registration statement on Form
S-1 (No. 333-228533). The SEC declared the registration statement effective on December 13, 2018. CHAC granted the
underwriters a 45-day option to purchase up to 1,050,000 additional Units to cover over-allotments at the Initial Public
Offering price, less the underwriting discounts and commissions. The over-allotment option expired unexercised on February 4,
2019.
Simultaneous with the consummation of
the Initial Public Offering, we consummated the private placement of an aggregate of 2,900,000 Private CHAC Warrants, each exercisable
to purchase one CHAC Share for $11.50 per share, to Mountain Wood, LLC, an affiliate of the Sponsor at a price of $0.40 per Private
CHAC Warrant, generating total proceeds of $1,160,000. The issuance was made pursuant to the exemption from registration contained
in Section 4(a)(2) of the Securities Act. These Private CHAC Warrants are identical to the warrants underlying the Units sold
in the Initial Public Offering, except that these warrants are not transferable, assignable or salable until after the completion
of a business combination, subject to certain limited exceptions. Additionally, these warrants are exercisable on a cashless basis
and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees.
After deducting the underwriting discounts,
offering expenses, and commissions from the Initial Public Offering and the sale of the private placement Private CHAC Warrants,
a total of $70,000,000 was deposited into a trust account established for the benefit of CHAC’s public stockholders, and
the remaining proceeds became available to be used to provide for business, legal and accounting due diligence on prospective
business combinations and continuing general and administrative expenses.
Of
the gross proceeds received from the Initial Public Offering and the Private Placement Warrants, $70,000,000 was placed in a trust
account. CHAC paid a total of $500,000 in underwriting discounts and commissions and $283,566 for other costs and expenses related
to the Initial Public Offering.
In
accordance with CHAC’s Amended and Restated Certificate of Incorporation, the amounts held in the trust account may only
be used by CHAC upon the consummation of a business combination, except that there can be released to CHAC, from time to time,
any interest earned on the funds in the trust account that it may need to pay its tax obligations. The remaining interest earned
on the funds in the trust account will not be released until the earlier of the completion of a business combination and CHAC’s
liquidation. CHAC executed a definitive agreement on December 13, 2018 and it must liquidate unless a business combination is
consummated by the date that is 24 months from the closing of the Initial Public Offering, or December 18, 2020.
Immediately
after closing the Initial Public Offering on December 18, 2018, the officers and directors of CHAC began to contact potential
candidates for a business combination. In addition, we were contacted by a number of individuals and entities with respect to
business combination opportunities.
CHAC evaluated each opportunity in the
context of the screening criteria established by its management, which included:
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Venture-backed
healthcare company in the biopharma or digital health sector;
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Public-ready
management team;
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Actively
considering a public listing;
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$200
million to $500 million initial public valuation; and
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Upcoming
catalysts to drive valuation post-business combination.
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We
believe our management team has a unique combination of experience as an underwriter, sponsor and advisor to SPACs and a wide
and active network of relationships and experiences as an investment bank to emerging growth healthcare companies with particular
focus on the biotechnology sector. Because of this combination of strengths, we were able rapidly and efficiently to evaluate
a wide range of potential business combination candidates, to determine which ones met our transaction criteria, and then quickly
to submit to proposals for a business combination to each of those finalist candidates.
Between
December 20, 2018 and May 31, 2019, CHAC reviewed 69 potential business combination candidates and submitted nine preliminary
proposals to certain of these potential targets, including its initial proposal to BiomX. The CHAC management team held frequent
discussion regarding the various targets during this period both internally and with a wide range of management teams at potential
targets.
With
regard to those eight targets with which CHAC did not pursue a business combination:
Candidate One: On December 21, 2018, Mr. Grossman
was introduced to the chief business officer of Candidate One by a third party. Candidate One focuses on innovative treatments
for liver and metabolic diseases with its lead asset at the Phase IIb level of development. On December 26, 2018, the companies
held a conference call which was followed by a series of emails and telephone calls and a meeting at Candidate One’s headquarters
involving Messrs. Grossman, Amusa, Kaufman and the senior management team of Candidate One. An initial proposal was presented
to Candidate One’s management during the meeting at Candidate One’s offices on January 3, 2019. The proposal valued
Candidate One at pre-transaction valuation of $217 million and proposed a structure that would have issued 20 million new CHAC
shares to Candidate One’s shareholders and resulted in Candidate One’s shareholders owning approximately 70% of the
outstanding shares in the company post-transaction assuming no redemptions. The proposal included an earnout based on the combined
company’s valuation during the year of closing. Discussions with Candidate One continued during the next week. However,
Candidate One informed CHAC on January 11, 2019 that it had decided to pursue a traditional initial public offering, ending discussions
between the companies regarding a business combination.
Candidate Two: On January 7, 2019, CHAC was introduced
to Candidate Two by a third party. Candidate Two is focused on gene-based therapies for certain rare diseases with its lead asset
at the Phase I-II level of development. Subsequently, the companies held a series of calls, emails and a meeting at Candidate
Two’s headquarters and manufacturing facilities. On January 22, 2019, CHAC submitted an initial proposal to Candidate Two.
The proposal valued Candidate Two at pre-transaction range of $268 million to $318 million and proposed a structure that would
have issued 25 million-to-30 million new CHAC shares to Candidate Two’s shareholders and resulted in Candidate Two’s
shareholders owning approximately 61%-to-66% of the outstanding shares in the company post-transaction assuming no redemptions.
The proposal included an earnout based on stock price performance during the six years post-closing. The proposal included the
assumption that CHAC would raise up to $70 million of additional capital in a PIPE transaction prior to closing. This initial
proposal transaction was followed by a series of conference calls to discuss the structure and valuation of that proposal and
its advantages relative to other alternative under consideration by Candidate Two. Discussion with Candidate Two came to an end
on February 26, 2019 when the company’s CEO informed CHAC management that Candidate Two would pursue alternative funding
plans.
Candidate Three: On January 17, 2019,
Mr. Grossman was introduced to the CEO of Candidate Three via email by a third party. Candidate Three is a biopharmaceutical company
focused on treatments for diseases of the kidney and gastrointestinal tract with a lead asset at the Phase III level of development.
Between January 18, 2019 and February 10, 2019, CHAC and Candidate Three held a series of conversations regarding the scientific,
clinical, and commercial status of Candidate Three’s business. On February 11, 2019, CHAC submitted an initial proposal
to Candidate Three. The proposal valued Candidate Three at a pre-transaction value of $367 million and proposed a structure that
would have issued 35 million ordinary shares of CHAC and resulted in Candidate Three’s shareholders owning approximately
69% of the outstanding shares in the company post-transaction assuming no redemptions. The proposal included an earnout based
on stock price performance during the two years post-closing. The proposal included the assumption that CHAC would raise up to
$70 million of additional capital in a PIPE transaction prior to closing. On February 21, 2019, Messrs. Grossman and Amusa held
a conference call with a leading shareholder of Candidate Three. A draft proposal was sent to the CEO of Candidate Three on March
6, 2019. Subsequently, the CEO of Candidate Three reported to Mr. Grossman that the company would be pursuing alternative funding
strategies and withdrew Candidate Three from discussion.
Candidate Four: On February 21, 2019, Mr. Jonas Grossman was introduced
by a third party to the Chairman of the Board of Candidate Four via email. Candidate Four is engaged in the development of gene-based
therapies focused on the oncology market with a lead asset at the Phase Ib level of development. CHAC and Candidate Four entered
into a nondisclosure agreement enabling CHAC to evaluate certain proprietary clinical and commercial information regarding Candidate
Four. Between March 13, 2019 and early April 2019, Messrs. Grossman and Amusa held a series of telephone conversations with the
CEO and research leadership of Candidate 4 and with certain institutional investors of that company. During April 2019, as discussions
with BiomX advanced, the frequency of interaction with Candidate Four decreased and no further interaction regarding the proposal
took place. The initial proposal sent to Candidate Four valued Candidate Four at a pre-transaction value of $350 million and proposed
a structure that would have issued 33.25 million ordinary shares of CHAC and resulted in Candidate Four’s shareholders owning
approximately 79% of the outstanding shares in the company post-transaction assuming no redemption from CHAC’s trust. The
proposal included multiple earnouts based on stock price performance during the three years post-closing. As discussions advanced
throughout the month of March, a revised proposal was sent out to Candidate Four. The revised proposal valued Candidate Four at
a pre-transaction value of $300 million and proposed a structure that would have issued 28.25 million ordinary shares of CHAC
and resulted in Candidate Four’s shareholders owning approximately 67% of the outstanding shares in the company post-transaction
assuming no redemptions. The revised proposal included multiple earnouts based on stock price performance during the three years
post-closing.
Candidate Five: Because of CHAC’s investment
banking and research coverage of genetic medicine companies, Candidate Five was known to the principals of CHAC as a leading private
gene therapy company. Candidate Five is focused on gene-based therapies for bleeding disorders and other chronic conditions with
lead asset at the Phase I/II stage of development. Subsequent to CHAC’s Initial Public Offering, Candidate 5 emerged as
a priority target for a potential business combination. No discussions regarding a potential business combination with Candidate
5 or any other candidate were held prior to CHAC’s Initial Public Offering. On March 1, 2019, Mr. Grossman discussed a potential
transaction with the CEO of Candidate Five. Mr. Amusa had a follow-up call with Candidate Five’s CEO and CFO and other members
of the management team on March 5,, 2019. CHAC submitted an initial proposal to Candidate Five on March 28, 2019. The
proposal valued Candidate Five at a pre-transaction valuation of $600 million and a proposed structure that would have issued
58.25 million ordinary shares of CHAC and resulted in Candidate Five’s shareholders owning approximately 79% of the outstanding
shares in the company post-transaction assuming no redemptions. The proposal included multiple earnouts based on stock price performance
during the two years post-closing. The proposal included the assumption that CHAC would raise up to $70 million of additional
capital in a PIPE transaction prior to closing. CHAC did not receive any substantive response and, as discussions with BiomX advanced,
CHAC did not pursue this opportunity further.
Candidate Six: On March 10, 2019,
CHAC was introduced to the CEO of Candidate Six by a third party. Candidate Six is a company engaged in the development of gene-based
therapies focused on the oncology market with lead asset at the Phase I stage of development. During the two weeks following the
initial introduction, discussions continued between CHAC and Candidate Six through conference calls between Messrs. Grossman and
Amusa and the CEO and CFO of Candidate Six. On these calls, CHAC and Candidate Six discussed general terms of a potential transaction
and the resulting ranges of ownership based on a range of potential valuations. Based on this dialogue, an initial presentation
containing an overview of SPACs and background on CHAC was sent to Candidate Six on March 25, 2019. No substantive response was
received, and as discussion with BiomX advanced, CHAC ended substantive discussions with Candidate Six.
Candidate Seven: Messrs. Grossman and Amusa met
initially with Candidate Seven at an industry conference during early April 2019. Candidate Seven is focused on immune system-based
therapies for a variety of diseases with lead asset at the Phase I stage of development. Subsequent to this meeting, CHAC held
a series of conference calls and meetings with the senior leadership of Candidate Seven. As a result of these interactions, an
initial presentation containing an overview of SPACs and some brief background on CHAC was sent to Candidate Seven. During subsequent
teleconferences, CHAC and Candidate Seven discussed general terms of a potential transaction and the resulting ranges of ownership
based on a range of potential valuations. Because discussions with BiomX accelerated and CHAC did not receive a reply from Candidate
Seven, CHAC ended substantive discussions with Candidate Seven.
Candidate Eight: CHAC was introduced to Candidate
Eight in early April 2019 via email by a third party. Candidate Eight focuses on immune system-based therapies for infectious
diseases and cancer with lead asset at the Phase III stage of development. Based on subsequent discussions and meetings between
Messrs. Grossman and Amusa and Candidate Eight’s leadership team, an initial presentation containing an overview of SPACs
and background on CHAC was sent to Candidate Eight. However, discussions with BiomX accelerated at this time. As a result, CHAC
ended substantive discussions with Candidate Eight.
The
background of CHAC’s interaction with BiomX is as follows:
On January 15, 2019, CHAC management held an internal meeting to discuss the microbiome sector as a focus
for the search for a suitable target company. The current clinical programs and prospects for growth were discussed for several
companies, including BiomX. Management commenced outreach both directly and to third parties regarding certain of these potential
candidates, including BiomX.
On
January 21, 2019, Mr. George Kaufman, CFO of CHAC, was introduced via email by a current investor in BiomX to Mr. Assaf Oron,
the Chief Business Officer of BiomX. This investor was aware of BiomX’s capital-raising plans and also of CHAC’s Initial
Public Offering and strategic goal to enter into a business combination with an innovative biotechnology company.
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On
January 22, 2019 CHAC and BiomX entered into a nondisclosure agreement that allowed CHAC
to be able to evaluate detailed financial and clinical information concerning BiomX.
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Between
January 23, 2019 and March 5, 2019, a series of email and conference calls took place
between Messrs. Amusa, Grossman, and Kaufman and BiomX management, including Jonathan
Solomon, BiomX’s CEO, Mr. Oron, and Sigal Fattal, BiomX’s CFO, to discuss
BiomX’s technical, strategic, commercial and capital-raising plans and the prospects
for a business combination with CHAC. Messrs. Grossman and Amusa also had calls with
certain of BiomX’s investors, including certain biotechnology-oriented funds and
family offices to discuss a range of strategic factors that could affect a business combination
between CHAC and BiomX, including the background for those investors’ interest
and valuations, their willingness to roll their equity forward or to increase their investments
in a possible business combination.
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On March 4, 2019
Messrs. Grossman and Kaufman sent an initial proposal to BiomX management. The proposal valued BiomX at a pre-transaction
valuation of $153 million and proposed a structure that would have issued 15.25 million new CHAC shares to BiomX’s shareholders
and resulted in BiomX’s shareholders owning approximately 64% of the outstanding shares in the company post-transaction
assuming no redemptions from CHAC’s trust. The proposal included two earnouts based on share price during the two years
following closing. The earnout stated BiomX would receive 3 million shares if the share price reached $19.30 in 2020 and an
additional 3 million shares if the share price reached $29.09. Discussions with BiomX continued during the next week.
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On
March 6, 2019, CHAC sent to BiomX a letter of intent (“LOI”) regarding a
potential business combination.
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On
March 7, 2019, Messrs. Solomon and Oron presented at Chardan’s Microbiome Summit
in New York. During the conference, Messrs. Grossman and Amusa and Messrs. Solomon and
Oron met with several biotechnology sector investors in attendance at the conference
to introduce BiomX, discuss the company’s commercial and scientific strategies,
and establish dialogues with those investors about their potential interest in BiomX.
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On
March 14, 2019, BiomX responded via email to the initial LOI with questions regarding
certain terms of the proposal, including the valuation range, post-transaction corporate
governance, and timing and the organization schedule and related tasks necessary to complete
due diligence.
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On
March 20, 2019, George Kaufman and Jonas Grossman had a conference call with Mr. Solomon
and Mr. Oron to discuss the proposed LOI, including valuation ranges and the treatment
of various tiers of the BiomX capital structure.
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On
March 24, 2019, Messrs. Grossman and Kaufman traveled to Israel for meetings at BiomX’s
offices. The CHAC management team met with the BiomX management team and researchers.
CHAC managers visited BiomX’s facilities. The respective teams reviewed the status
of the proposed LOI as well as BiomX scientific, operational, and commercial strategies
and the company’s readiness for a business combination with CHAC. The BiomX and
CHAC management teams negotiated certain of the terms in the initial proposal including
valuation and revisions of the earnout milestones. Certain additional terms were discussed
including the participation of current BiomX investors in the transaction and the introduction
of a minimum cash condition to closing.
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Between
March 25, 2019 and April 4, 2019, the parties held a series of conference calls and meetings
regarding both BiomX technology and the terms of a proposed business combination. Negotiations
regarding the terms of the LOI took place between the CHAC’s management, CHAC’s
counsel at Loeb & Loeb LLP, BiomX, and BiomX’s counsel Goodwin Proctor LLP.
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On April 4, Messrs.
Grossman and Kaufman sent BiomX a revised proposal. The proposal valued BiomX at a pre-transaction range of $153 million to
$180 million and proposed a structure that would have issued 15.25 million-to-18 million new CHAC shares to BiomX’s
shareholders and resulted in BiomX’s shareholders owning approximately 64%-to-73% of the outstanding shares in the company
post-transaction assuming no redemptions. The proposal included three earnouts based on share price during the six years following
closing. The earnout stated BiomX would receive 2 million shares if the share price reached $16.50 in 2021, an additional
2 million shares if the share price reached $22.75 in 2023 and another 2 million shares if the share price reached $29.00
in 2025.
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On
April 5, 2019, CHAC and BiomX executed the LOI.
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Between April 8,
2019 and June 14, 2019, Messrs. Solomon and Oron and other members of the BiomX management and scientific advisory teams,
along with Messrs. Grossman, Amusa, and Kaufman met in various combinations and confidentially in the United States and Europe
with fund managers, including certain stockholders of CHAC, to discuss BiomX and the proposed business combination with CHAC
to determine the potential level of market interest in a transaction between BiomX and CHAC. Negotiations continued in several
areas including setting an initial minimum cash condition of between $50 million and $70 million. Discussions regarding
the valuation range also continued. Feedback from the meetings with certain stockholders of CHAC and BiomX resulted in refinement
of certain terms regarding the participation of current shareholders and the minimum cash condition.
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On
May 9, 2019, during a Board of Directors conference call meeting to review CHAC’s
quarterly financial disclosure and Form 10-Q filing, CHAC management briefed the CHAC
Board of Directors on the progress of a search for a business combination target and
provided an update on the status of talks with BiomX.
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On
May 21, 2019, a conference call took place to discuss timing and plans for continuing
due diligence between BiomX and CHAC. The conference call was attended by Messrs. Grossman,
Kaufman, Amusa, and support staff from Chardan; Messrs. Solomon, Oron, Fattal and support
staff from BiomX; Loeb & Loeb LLP; and Goodwin Proctor LLP. Later on that same date,
a conference call was held between Loeb & Loeb LLP, Goodwin Proctor LLP, and partners
from Marcum LLP and Brightman Almagor Zohar & Co. (the Israel member firm of Deloitte
Touche Tohmatsu Limited, “Deloitte Israel”), CHAC’s and BiomX’s
auditors, respectively, to discuss required review, audit, disclosure, ongoing diligence
procedures, and timing of tasks to be undertaken by all parties.
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On
May 23, 2019, CHAC provided an initial draft merger agreement to BiomX. Negotiations
of transaction terms continued. The parties also discussed the participation of certain
BiomX stock option holders and warrant holders in the transaction.
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Between
May 22, 2019 and July 16, 2019, CHAC continued its review of due diligence materials.
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On
June 20, 2019, Mr. Amusa held a telephone call with one of BiomX’s commercial partners
to discuss the status and progress of BiomX’s cooperation with that partner and
to review the prospects for continued clinical cooperation in the future.
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In
May and June 2019, the various deal teams negotiated the terms of a definitive agreement
between CHAC and BiomX. During those negotiations the parties narrowed the valuation
range being discussed, finalized the post-closing composition of the new Board of Directors,
discussed a minimum cash condition for closing, and reviewed a range of potential structures
for the transaction, among other deal terms. With regard to the transaction structure,
the parties analyzed and discussed the legal, financial, operational, tax, and strategic
impact of different structures on the investors of both BiomX and CHAC before agreeing
on final terms.
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On
June 24, 2019, Mr. Grossman traveled to Israel to conduct negotiations on remaining business
terms for a business combination between CHAC and BiomX. He returned to New York on June
25, 2019.
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On
June 26, 2019, CHAC held a special meeting of its Board of Directors. Attending the meeting
were Messrs. Grossman, Amusa, and Kaufman along with independent directors Messrs. Rossen,
Kusseluk, Rice, Gnedy, and Giroux. Also attending the meeting was Loeb & Loeb LLP.
Mr. Grossman presented a review of the overall search process and a summary of the status
of negotiations with BiomX including the remaining business issues that had yet to be
resolved. He informed the Board of Directors that the talks were either going to conclude
shortly and that the Board of Directors would be called on to review a proposed merger
agreement and related document or that CHAC would move on to consideration a new round
of potential merger candidates that had been identified but with whom discussion had
been discontinued pending resolution of negotiations with BiomX.
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On
June 27, 2019, Mr. Grossman and Messrs. Solomon and Oron held a conference call and discussed
certain negotiation points, including CHAC’s willingness to forego certain amounts
of Founder Shares in the event minimum levels of cash did not remain in CHAC’s trust account at the time of the potential business combination, and BiomX’s
willingness to exclude certain vested or unvested employee warrants and options from
inclusion in merger consideration at the time of the potential business combination.
The parties agreed to certain final business terms and informed their respective counsels
that an agreement in principal had been reached, pending final documentation and respective
Board of Directors’ approvals.
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Later in the day
on June 27, 2019, a conference call was held attended by the respective working group members including Mr. Grossman from
CHAC, Messrs. Solomon and Oron and Ms. Fattal from BiomX, Loeb & Loeb LLP and Goodwin Proctor LLP, Deloitte
Israel, and certain other advisors to both CHAC and BiomX. The group reviewed the general agreement in principal on certain
terms including final valuation, treatment of BiomX option holders and warrant holders, and the minimum cash condition. The
working group discussed plans to finalize transaction documents, including the merger agreement and ancillary required documents
and regulatory filings, and the timeline for all parties to complete their work prior to a public announcement and subsequent
schedule of events prior to a proposed closing of the business combination.
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On July 10, 2019 the CHAC Board of Directors held a special meeting to review the transaction with BiomX. At this meeting, CHAC’s Board of Directors approved the transaction and authorized CHAC to enter into the definitive agreement with BiomX to effect the business combination between BiomX and CHAC subject to there being no material changes in the business terms of the Merger Agreement between that date and the approval of the transaction by the BiomX Board of Directors.
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On July 15, 2019 the BiomX Board of Directors approved the Merger Agreement and related agreements to
effect the business combination between BiomX and CHAC.
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On
July 16, 2019, the signing of the Merger Agreement by CHAC and BiomX was announced to
the public.
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On
July 17, 2019, CHAC filed a Current Report on Form 8-K including a press release, a copy
of the Merger Agreement, and a presentation for investors.
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CHAC’s
Board of Directors’ Reasons for the Approval of the Business Combination
CHAC’s
Board of Directors considered a number of factors pertaining to the Business Combination as generally supporting its decision
to enter into the Merger Agreement and the Business Combination, including but not limited to, the following material factors:
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Phage
represents a potentially disruptive and emerging technology. BiomX is a preclinical
stage microbiome product discovery company developing customized, precision phage products
and therapies to improve the appearance of acne-prone skin and treat medical conditions
related to the presence of specific strains of harmful bacteria that emerging science
suggests may be causative agents in acne-prone skin and chronic diseases such as inflammatory
bowel disease (IBD), primary sclerosing cholangitis (PSC), and colorectal cancer. BiomX
discovers and validates proprietary bacterial targets and customizes natural and engineered
phage cocktails against these specific targets, to overcome the limitations of antibiotic
therapies, such as drug resistance and the lack of precision in antibiotic antibacterial
activity which may lead to dysbiosis. Emerging preclinical science is showing harmful
bacterial may play a role in acne (P. acnes), IBD (K. pneumoniae), PSC
(K. pneumoniae), and/or colorectal cancer (F. nucleatum); and, phage technology
may be a precision tool to reduce or eliminate specific strains of harmful bacteria without
exposing patients to risks of eliminating beneficial bacteria through the use of antibiotics.
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The safety of
phage therapies has been discussed by the U.S. FDA. Human exposure to phages occurs every day. Certain bacteriophage cocktails
are generally recognized as safe (GRAS) under U.S. food laws and have been approved as food additives. During a July 10, 2017
session at the FDA (“Bateriophage Therapy: Scientific and Regulatory Issues Public Workshop”), Doran Fink,
MD, PhD, of the Center for Biologics Evaluation and Research at the FDA stated that phage target specific bacteria and are
presumed not to affect human cells and tissue. Indeed, as discussed in the same workshop, the FDA has not had requirements
for general GLP toxicology studies for phage therapies. Although it is not established that the use of phage cocktails in
food additives indicates that any future phage products developed by BiomX will be safe (particularly if higher doses will
be required to have a clinically-meaningful impact), it is our opinion that existing FDA precedents on food additives, the
FDA’s 2017 Workshop comments on phage safety, and the associated historical evidence of phage safety increase the probability
BiomX’s products will be deemed safe if the FDA ultimately deems BiomX’s products effective to treat specific
medical indications. Potentially disruptive biotechnologies associated with safety have increased likelihood to meet unmet
medical needs in large chronic disease markets given desires for wide safety margins.
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BiomX targets large market opportunities with potentially
safe phage cocktails. Due to the safety of phage technologies so far, BiomX is applying its technologies in larger, more
attractive chronic disease markets. EvaluatePharma estimates the global IBD and colorectal cancer markets, respectively,
generated $17.7 billion and over $8.4 billion in prescription sales in 2018. We estimate that the prevalence of PSC in the
United States is approximately 30,000 patients. For example, a rare disease drug price for PSC of $125,000 or more annually
would provide for a total addressable U.S. PSC market opportunity of over $3.5 billion in sales. BiomX is also targeting the
potentially lower-risk cosmetic market for the product candidate that may improve the appearance of acne-prone skin. Due to
the potential safety of phage, commercialization of a cosmetic product to improve the appearance of acne-prone skin with BiomX’s
global partner may occur without the need for FDA approval. WiseGuy Reports estimates the market for cosmetic treatments for
acne-prone skin in developed markets during 2018 to exceed approximately $4 billion.
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Multiple
clinical readouts could create value inflection points in the years ahead. BiomX
targets to generate proof-of-concept results in its first clinical trial in acne-prone
skin by the first quarter of 2020, with results from the second clinical trial by the
end of 2020. BiomX targets generating Phase 1 data in IBD by the end of 2020. PSC Phase
1/2 data are targeted by the end of 2021. If one or more of the clinical datasets results
in positive results, the potential for BiomX to see future commercial successes may be
enhanced.
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BiomX
has diversified paths to future revenues and profits. BiomX’s therapeutic programs
target a diversified set of markets cited above, enabling potential future commercial
successes to not be entirely dependent on the success of a single product candidate or
on the patient populations, reimbursement policies, or competing therapeutic agents associated
with a particular commercial market. Given BiomX’s platform technologies, the possibility
of expanding the uses of BiomX’s technologies into new indications may create strategic
options that further diversify potential future revenue and profit streams.
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High
scientific barriers to entry exist to replicate BiomX’s capabilities. BiomX’s
technologies are notable for microbiome (bacterial) biology, phage (viral) biology, computational
biology (through the December acquisition of RondinX), and synthetic biology capabilities
generated in house and from the research of pre-eminent thought leaders at the Weizmann
Institute and MIT. Replicating competencies in microbiome biology, phage biology, computational
biology, and synthetic biology is a significant barrier, which potentially attracted
the interest of BiomX’s large cap strategic investors.
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Support
exists from preeminent scientific sponsors and founders. BiomX’s technology
is based on the research and continuing work of Profs. Rotem Sorek, Ph.D., Eran Elinav,
M.D., Ph.D., and Eran Segal, Ph.D., of The Weizmann Institute; and Professor
Timothy K. Lu, M.D., Ph.D., of MIT. The scientific
founders lead microbiome, phage, and synthetic biology research that has seen widespread
publication in respected peer-reviewed articles. The quality and credibility of BiomX’s
sponsors is a meaningful differentiator and a competitive advantage as BiomX develops
its therapeutic portfolio. For example, due to the relationships of the scientific founders,
BiomX has been able to obtain access to a potentially pathological strain of Klebsiella
pneumoniae for the IBD program.
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BiomX has intellectual property that is intended to generate important barriers to entry. BiomX seeks to protect its programs with intellectual property related to: phage combinations and cocktails that create new therapeutic functionality, engineering to create synthetic phage cocktails, bacterial targets for eradication and therapies targeting such bacteria, proprietary target discovery tools including the use of data analytic techniques, new formulations including novel topical gels, and innovative manufacturing techniques. BiomX’s intellectual property may represent a strategic advantage in general but particularly at the early phases of microbiome-targeted medicines where BiomX’s technology may serve as a valuable foundation for broader use in an emerging industry where BiomX may capture economic benefits.
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BiomX
has an experienced and proven management team. The BiomX management team has a successful
track record managing emerging growth biotechnology companies from early stages through
commercialization. Prior to joining BiomX, CEO Jonathan Solomon was co-founder, president,
and CEO of ProClara (formerly NeuroPhage) where the company raised more than $100 million
and launched clinical trials during his tenure. Chief Business Officer Assaf Oron held
various positions including executive vice president of corporate development and executive
vice president of strategy at Evogene, an agricultural biotechnology company, and served
as CEO of ChondroSite, a biotechnology company. Chief Medical Officer Dr. Sailaja Puttagunta
was most recently Vice President, Development at Iterum Therapeutics, a clinical-stage
pharmaceutical company developing antibiotics against multi-drug resistant pathogens.
Prior to Iterum, Dr. Puttagunta served as VP, Medical Affairs for Anti-infectives at
Allergan from early 2015 and was the VP of Development and Medical Affairs at Durata
Therapeutics, Inc. prior to its acquisition by Actavis plc. Prior to Durata, Dr. Puttagunta
led teams within clinical development and medical affairs on various antibiotic compounds
at Pfizer Inc.
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BiomX
has support and validation from leading global commercial partners. BiomX is working with a leading multinational cosmetic
company on studies of its acne-prone skin product candidate. The Company is working with Janssen, a unit of Johnson &
Johnson, on biomarker discovery for its IBD treatment. The interest and support of these commercial partners enhances BiomX’s
research and commercialization potential.
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Continued
participation by leading biotech private investors. BiomX shareholders include OrbiMed
Healthcare Fund Management, Johnson & Johnson, Takeda Pharmaceuticals, Seventure,
and 8VC. No current investors are selling shares during the Business Combination and
all have agreed to vote in favor of the transaction. We believe the research and due
diligence done by these investors represents a validation of BiomX’s technology,
strategies, and management.
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Industry
Trends and the Business and Financial Condition and Prospects of BiomX. The board is knowledgeable about the biotechnology
industry and considered BiomX’s business, financial condition, results of operations (including BiomX’s favorable
cash burn profile) and future growth prospects. The Board discussed BiomX’s current prospects for growth in executing
upon and achieving BiomX’s business plans. The Board considered these potential prospects as they might have an impact
on the future per share valuation of BiomX relative to the $10.00 per share valuation at which the Merger Agreement was negotiated.
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Other
Alternatives. The Board’s belief is that the proposed Business Combination
represents the best potential business combination for the Company based upon the process
utilized to evaluate and assess other potential acquisition targets, and the Board’s
and management’s belief that such processes had not presented a better alternative.
|
|
●
|
Terms
of the Merger Agreement. The Board considered the terms and conditions of the Merger Agreement and the transactions contemplated
thereby including the negotiated valuation of $10.00 per share relative to the results of the Company’s financial analysis
of BiomX’s potential future valuation.
|
CHAC’s
Board of Directors also considered a variety of uncertainties and risks and other potentially negative factors concerning the
Business Combination, including, but not limited to, the following:
|
●
|
Benefits
Not Achieved. The risk that the potential benefits of the Business Combination may
not be fully achieved, or may not be achieved within the expected timeframe.
|
|
●
|
Liquidation
of CHAC. The risks and costs to CHAC if the Business Combination is not completed,
including the risk of diverting management focus and resources from other businesses
combination opportunities, which could result in CHAC being unable to effect a business
combination by December 2020 and force CHAC to liquidate and the warrants to expire worthless.
|
|
●
|
Stockholder
Vote. The risk that CHAC’s stockholders may fail to provide the votes necessary
to effect the Business Combination.
|
|
●
|
Closing
Conditions. The fact that completion of the Business Combination is conditioned on
the satisfaction of certain closing conditions that are not within the Company’s
control.
|
|
●
|
Litigation.
The possibility of litigation challenging the Business Combination or that an adverse
judgment granting permanent injunctive relief could indefinitely enjoin consummation
of the Business Combination.
|
|
●
|
Fees
and Expenses. The fees and expenses associated with completing the Business Combination.
|
|
●
|
Other
Risks. Various other risks associated with the Business Combination, the business of the Company and the business of BiomX
described under the section entitled “Risk Factors.”
|
In
addition to considering the factors described above, the Board of Directors also considered that:
|
●
|
Interests of Certain
Persons. Some officers and directors of the Company may have interests in the Business Combination as individuals that
are in addition to, and that may be different from, the interests of the Company’s stockholders (see The Business
Combination Proposal — Interests of Certain Persons in the Business Combination”). Our independent directors
reviewed and considered these interests during the negotiation of the Business Combination and in evaluating and unanimously
approving, as members of the Board, the Merger Agreement and the Business Combination.
|
The
Board of Directors concluded that the potential benefits that it expected CHAC and its stockholders to achieve as a result of
the Business Combination outweighed the potentially negative factors associated with the Business Combination. Accordingly, the
Board of Directors unanimously determined that the Merger Agreement and the Business Combination were advisable, fair to, and
in the best interests of, CHAC and its stockholders.
Summary
of CHAC Financial Analysis
The
following is a summary of the material financial analyses prepared and reviewed by CHAC in connection with the valuation of BiomX.
The summary set forth below does not purport to be a complete description of the financial analyses performed or factors considered
by us nor does the order of the financial analyses described represent the relative importance or weight given to those financial
analyses by the Board of Directors. We may have deemed various assumptions more or less probable than other assumptions, so the
reference ranges resulting from any particular portion of the analyses summarized below should not be taken to be our view of
the actual value of BiomX. Some of the summaries of the financial analyses set forth below include information presented in tabular
format. In order to fully understand the financial analyses, the tables must be read together with the text of each summary, as
the tables alone do not constitute a complete description of the financial analyses performed by us. Considering the data in the
tables below without considering all financial analyses or factors or the full narrative description of such analyses or factors,
including the methodologies and assumptions underlying such analyses or factors, could create a misleading or incomplete view
of the processes underlying our financial analyses and our Board of Directors’ recommendation.
In performing our analyses, we made numerous
material assumptions with respect to, among other things, timing of clinical trials, patient enrollment, timing of receipt of regulatory
approvals that may be needed, characterization of the product candidates, the timing of, and amounts of, any royalty payments,
milestone payments or other payments due to third parties by BiomX, the entry by BiomX into license or collaboration agreements,
market size, commercial efforts, industry performance, general business and economic conditions and numerous other matters, many
of which are beyond the control of CHAC, BiomX or any other parties to the Business Combination. None of BiomX, CHAC, or any other
person assumes responsibility if future results are materially different from those discussed. Any estimates contained in these
analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly
more or less favorable than as set forth below. In addition, analyses relating to the value of BiomX do not purport to be appraisals
or reflect the prices at which BiomX shares may actually be valued. Accordingly, the assumptions and estimates used in, and the
results derived from, the financial analyses are inherently subject to substantial uncertainty. Except as otherwise noted, the
following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or
before July 15, 2019 (the last trading day before the public announcement of the Business Combination) and is not necessarily indicative
of current market conditions.
For purposes of evaluating BiomX’s
financial condition and in connection with CHAC’s preparation of projections, CHAC management was provided with documents
from BiomX including forward-looking top-line cash expense projections and market sizing based on disease prevalence. Based on
CHAC’s experience and professional judgment, CHAC applied certain adjustments to those cash expense estimates for modeling
purposes. CHAC’s assumptions used in connection with its valuation analysis were based in part on BiomX’s projected
expenses, but forward looking revenues were derived by CHAC from internal research and proprietary modeling, without BiomX’s
participation or review. See “Certain CHAC Forecasts.”
Selected
Initial Public Offering Market Analysis
CHAC reviewed certain financial information
of BiomX and the structure of the proposed Business Combination and compared it to corresponding financial information of certain
recent initial public offerings (in this section) and certain publicly-traded companies (in the next section) that CHAC selected
based on CHAC’s experience and professional judgment. Although none of the selected companies is directly comparable to
BiomX, the companies listed below were chosen by CHAC, among other reasons, because they successfully completed initial public
offerings and they were microbiome and related companies with what we consider comparable assets comparable clinical stage assets
and with certain operational, business and/or financial characteristics that, for purposes of CHAC’s analysis, may be considered
similar to those of BiomX. Since BiomX intends to initiate first human studies of BX001 in 2019, CHAC considers the relevant comparable
companies to be clinical-stage companies. (We additionally note the absence of publicly-traded, U.S.-listed pre-clinical microbiome
companies.)
However,
because none of the selected companies is exactly the same as BiomX, CHAC believed that it was inappropriate to, and therefore
did not rely solely on the quantitative results of the selected initial public offering analysis. Accordingly, CHAC also made qualitative
judgments, based on its experience and professional judgment, concerning differences between the operational, business and/or
financial characteristics of BiomX and the selected companies to provide a context in which to consider the results of the quantitative
analysis.
CHAC
reviewed and compared pre-money and post-money equity values for the initial public offerings of selected companies based on information
obtained from public filings, publicly available information, and available research. Based on this analysis of microbiome initial public offerings, which CHAC deemed relevant based on its professional judgment and expertise,
CHAC applied a band of plus or minus 25% to the mean post-money valuation of these transactions.
The
selected companies’ Initial Public Offering Market Analysis is set forth below:
Date
|
|
Issuer
|
|
Lead Asset
Stage at Initial
Public Offering
|
|
Size
($MM)
|
|
|
Pre-
Money
($MM)
|
|
|
Post-
Money
($MM)
|
|
02/28/19
|
|
Kaleido BioSciences
|
|
Pre-Phase 2
|
|
$
|
75
|
|
|
$
|
369
|
|
|
$
|
444
|
|
05/08/18
|
|
Evelo Biosciences
|
|
Phase 1
|
|
$
|
85
|
|
|
$
|
425
|
|
|
$
|
510
|
|
06/25/15
|
|
Seres Therapeutics
|
|
Phase 2
|
|
$
|
134
|
|
|
$
|
547
|
|
|
$
|
681
|
|
Mean
|
|
|
|
|
|
$
|
98
|
|
|
$
|
447
|
|
|
$
|
545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BiomX
|
|
Late Pre-clinical
|
|
$
|
70
|
|
|
$
|
166
|
|
|
$
|
254
|
|
CHAC divided the post-money equity value
for each comparable initial public offering by the number of pro forma company shares outstanding, assuming no redemptions from
trust. CHAC then took the average of this calculation across the three transactions, which equaled $21.48 per share. We then derived
a range around that average by adding or subtracting 25% of that average. This analysis resulted in the following implied per
share equity value ranges for the BiomX shares:
Scenario
|
|
Implied Per Share Equity Value Range
|
|
Mean minus 25%
|
|
$
|
16.11
|
|
Mean
|
|
$
|
21.48
|
|
Mean plus 25%
|
|
$
|
26.85
|
|
CHAC
compared these ranges to the $10.00 valuation per CHAC Share proposed to be paid to the holders of the BiomX shares in the form
of newly issued CHAC Shares pursuant to the Merger Agreement.
Selected
Microbiome Public Comparable Company Analysis
CHAC
reviewed certain financial information of BiomX and compared it to certain publicly
traded companies, selected based on CHAC’s experience and professional judgment.
Because
none of the selected companies is exactly the same as BiomX, CHAC believed that it was inappropriate to, and therefore did not
rely solely on the quantitative results of the selected public company analysis. Accordingly, CHAC also made qualitative judgments,
based on its experience and professional judgment, concerning differences between the operational, business and/or financial characteristics
of BiomX and the selected companies to provide a context in which to consider the results of the quantitative analysis.
CHAC
considered certain financial and operating data for publicly traded microbiome and related genetic medicine-oriented companies
that CHAC deemed relevant for analysis. The selected companies were:
|
●
|
Kaleido
Biosciences, Inc.
|
|
●
|
Evelo
Biosciences, Inc.
|
|
●
|
Seres
Therapeutics, Inc.
|
None of the selected companies
have characteristics identical to BiomX. These companies have greater resources than does BiomX and their product candidates may
be more advanced than those of BiomX. However, CHAC selected these companies based on its experience and professional judgment.
An analysis of selected publicly traded companies is not purely quantitative; rather it involves complex consideration and judgements
concerning differences in financial and operating characteristics of the selected companies and other factors that could affect
the public trading values of the companies reviewed. CHAC believed that it was inappropriate to, and therefore did not, rely solely
on the quantitative results of the selected public company analysis. Accordingly, CHAC also made qualitative judgments, based
on its experience and professional judgment, concerning differences between the operational, business and/or financial characteristics
of BiomX and the selected companies to provide a context in which to consider the results of the quantitative analysis.
Because BiomX’s projected
revenues would be expected to become material after 2025, CHAC calculated the long-term forward revenue multiples for the selected
companies based on information it obtained from public filings and from Chardan Equity Research.
|
|
2028
|
|
|
2029
|
|
|
2030
|
|
Company, Category
|
|
EV/
Revenue
Multiple
|
|
|
EV/
Revenue
Multiple
|
|
|
EV/
Revenue
Multiple
|
|
Seres Therapeutics, Inc.
|
|
|
0.2
|
x
|
|
|
0.1
|
x
|
|
|
0.1
|
x
|
Evelo Biosciences, Inc.
|
|
|
0.2
|
x
|
|
|
0.1
|
x
|
|
|
0.1
|
x
|
Kaleido BioSciences, Inc.
|
|
|
0.6
|
x
|
|
|
0.5
|
x
|
|
|
0.4
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low Multiple Applied
|
|
|
0.5
|
x
|
|
|
0.4
|
x
|
|
|
0.3
|
x
|
High Multiple Applied
|
|
|
0.6
|
x
|
|
|
0.5
|
x
|
|
|
0.4
|
x
|
Based on experience and professional
judgment, CHAC applied a range of forward multiples to BiomX’s long-term revenues in each of the three forecast scenarios
to derive enterprise value. CHAC then calculated an average enterprise value across the multi-year forecast period. CHAC then
derived equity value by adding the forecast net cash balance to each enterprise value, and then divided the aggregate equity values
by shares outstanding to obtain an estimated equity value per share.
The
selected company analysis indicated an implied per share reference ranges shown in the table below for each of the Case A, Case
B, and Case C Forecasts as set forth in the section entitled “Certain Forecasts” below.
Scenario
|
|
Low end
|
|
|
High End
|
|
Case A
|
|
$
|
10.52
|
|
|
$
|
12.30
|
|
Case B
|
|
$
|
14.64
|
|
|
$
|
17.55
|
|
Case C
|
|
$
|
21.49
|
|
|
$
|
26.24
|
|
CHAC
compared these ranges to the $10.00 valuation per CHAC Share proposed to be paid to the holders of the BiomX shares in the form
of newly issued CHAC Shares pursuant to the Merger Agreement.
Discounted
Cash Flow Analysis
CHAC
performed discounted cash flow analyses of BiomX based on Case A Forecasts, Case B Forecasts and Case C Forecasts as set forth
below, all of which forecasts were produced by CHAC based on information provided by BiomX. A discounted cash flow analysis is
an established valuation method used to estimate the “present value” of future cash inflows of an asset or investment
in order to estimate the attractiveness of the investment opportunity. The “present value” can be calculated by discounting
the future cash flows at a discount rate (weighted average cost of capital, or “WACC”) that considers opportunity
costs of capital, the return that investors expect, and the investment’s exposure to macroeconomic or systemic risks, and
other appropriate factors. A discounted cash flow analysis can also be adapted to fit the specifics of a certain sector like the
microbiome sector. However, it should be understood that the microbiome sector is still a new area of focus, the regulatory approval
pathway for novel and engineered phage is uncertain, and it is inherently unreliable to predict the cash flows for a preclinical
stage company. Moreover, the analysis assumes that BiomX will be treated as a cosmetic product and there can be
no assurance, as discussed in “Risk Factors” that regulators will not object to this approach.
In conducting discounted cash
flow analyses across the cases presented, CHAC calculated ranges of BiomX equity per share values by calculating, using the
mid-year convention, present values as of June 30, 2019 using WACCs ranging from 13.4% to 15.4%. CHAC additionally considered
or generated (a) risk-adjusted sales estimates for BiomX’s products in acne-prone skin, IBD, PSC, and colorectal cancer,
(b) a full income statement, a full cash flow statement, and a full balance sheet, (c) BiomX’s estimated net cash balance
as of June 30, 2019 of approximately $40 million, based on the internal data provided by BiomX management, (c) an assumed
$70 million equity financing in 2019 at $10 per share net proceeds to support the development of products in acne-prone skin,
IBD, PSC, and colorectal cancer. CHAC divided the BiomX enterprise value by the pro forma fully diluted BiomX shares as at the
estimated close of the Business Combination to derive equity value per share ranges listed below.
This
analysis resulted in the following implied per share equity value ranges for the BiomX shares:
Case
|
|
Implied Per BiomX
Share
Equity Value Range
|
|
Case A Forecasts
|
|
$
|
16.81 – $22.99
|
|
Case B Forecasts
|
|
$
|
27.55 – $37.81
|
|
Case C Forecasts
|
|
$
|
45.38 – $62.37
|
|
CHAC
compared these ranges to the $10.00 valuation per CHAC Share proposed to be paid to the holders of the BiomX shares in the form
of newly issued CHAC Shares pursuant to the Merger Agreement.
General
In
arriving at BiomX valuations under various scenarios and cases, CHAC made assumptions and determinations on the basis of its professional
judgment and experiences, independently of BiomX, after reviewing the results of various financial analyses and other diligence.
The financial analyses above and other diligence should not be considered determinative as to perspectives or views of the BiomX
management or Board, as relates to whether the current or a different consideration is fair. The ultimate consideration for the
Business Combination was established through arm’s-length negotiations between BiomX and CHAC prior to approval by the BiomX
and CHAC boards.
Certain
CHAC Forecasts
BiomX is a preclinical stage microbiome
company expecting to start a first clinical trial by the end of 2019, and as such does not yet have any revenue-generating products,
and thus does not make public its long-term financial forecasts driven by the potential of its phage products. In connection with
BiomX’s Board of Directors’ evaluation of the Business Combination, BiomX’s management did not prepare long-range,
risk-adjusted revenue projections but did provide expense estimates for the years 2019 through 2022, which were based on numerous
assumptions and qualifications believed by BiomX to be reasonable. The expense forecasts were provided to the BiomX Board of Directors
and to CHAC. CHAC conducted additional analyses, independently of BiomX, to assess the risk-adjusted revenue prospects of acne (assuming
the product candidate will be marketed as a cosmetic), IBD, PSC, and colorectal cancer products by relying on assumptions, none
of which were approved by BiomX, about the robustness of BiomX’s technologies, the likelihood of the emergence of phage as
a therapeutic platform, regulatory postures around phage technology, and individual product probabilities of success, launch timing,
pricing, pricing growth, market growth, phage market penetration, BiomX product candidates’ market share, effects from competition
and certain other factors affecting the commercial prospects of BiomX’s product candidates. Factors considered and assumptions
made by CHAC are extremely uncertain and difficult to predict, with many being beyond the control of BiomX or its competitors as
discussed in the section titled “Risk Factors.” CHAC thought it appropriate to prepare forecasts representing three
cases (A, B, and C) reflecting a range of risk-adjusted commercial outcomes on BiomX’s portfolio of product candidates, none
of which has received any regulatory or marketing approvals. As such, there can be no certainty that the forecasts presented will
be realized or that BiomX will ever receive regulatory approval required in connection with any product candidate or achieve profitability.
CHAC’s management
has prepared the prospective financial information set forth below to present three cases (A, B, and C) reflecting a range of
risk-adjusted commercial outcomes on BiomX’s portfolio of product candidates, none of which has received any regulatory
or marketing approvals. The three cases represent three potential outcomes with revenue variations over the three cases (A, B,
and C) driven only by differences in various assumptions relating to product launch probabilities. These assumptions are based
on the industry-based expertise of CHAC’s management as well as an assessment undertaken by CHAC of BiomX’s internal
scientific data.
Assumption
|
|
Case A:
Lower
product launch probabilities
|
|
|
Case B
Moderate product launch probabilities
|
|
|
Case C
Higher product launch probabilities
|
|
Probability of Launch
for BX001
|
|
|
40
|
%
|
|
|
60
|
%
|
|
|
100
|
%
|
Probability of Launch for BX002
|
|
|
15
|
%
|
|
|
25
|
%
|
|
|
40
|
%
|
Probability of Launch for BX003
|
|
|
10
|
%
|
|
|
15
|
%
|
|
|
25
|
%
|
Probability of Launch for Colorectal Cancer
Product
|
|
|
<2.5
|
%
|
|
|
<5
|
%
|
|
|
<7.5
|
%
|
Probability of Launch for Other Long-term
Pipeline Products
|
|
|
<1
|
%
|
|
|
<2
|
%
|
|
|
<3
|
%
|
For all three cases, projected
cash expenses for fiscal years 2019 through 2022 were based on financial estimates provided by BiomX management, deemed to be
reasonable by CHAC (shown below). Based on CHAC’s experience and professional judgment, CHAC applied certain adjustments
to those cash expense estimates for modeling purposes. Projected costs beyond fiscal year 2022 were sales volume dependent and
derived solely from CHAC modeling. The projected expenses provided by BiomX are cash expense projections only and were based on
a number of assumptions considered to be reasonable by BiomX under the circumstances. BiomX does not intend to update the cash
expense data furnished to CHAC nor does it intend to make public such expense projections in the future.
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
Pipeline Total Costs
|
|
$
|
7,250
|
|
|
$
|
12,230
|
|
|
$
|
14,000
|
|
|
$
|
17,000
|
|
|
$
|
22,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R&D Platform
|
|
$
|
1,510
|
|
|
$
|
2,010
|
|
|
$
|
2,040
|
|
|
$
|
2,500
|
|
|
$
|
2,500
|
|
Equipment and Fixed Assets
|
|
|
140
|
|
|
|
2,070
|
|
|
|
500
|
|
|
|
500
|
|
|
|
500
|
|
Corporate &
Other(1)
|
|
|
2,995
|
|
|
|
4,070
|
|
|
|
3,500
|
|
|
|
4,000
|
|
|
|
4,000
|
|
(Grant Support)
|
|
|
(595
|
)
|
|
|
(1,045
|
)
|
|
|
(1,000
|
)
|
|
|
(1,000
|
)
|
|
|
(1,000
|
)
|
Total
Costs(2)
|
|
$
|
11,300
|
|
|
$
|
19,335
|
|
|
$
|
19,040
|
|
|
$
|
23,000
|
|
|
$
|
28,000
|
|
|
(1)
|
Does not include transaction expenses.
|
|
(2)
|
Projected costs
are estimates, which include projected cash flows.
|
The accompanying prospective
financial information was not prepared with a view toward public disclosure or with a view toward complying with the guidelines
established by the SEC, nor for GAAP or other foreign or international accounting standards respect to prospective financial information,
but, in the view of CHAC’s management, was prepared on a reasonable basis, reflects the best currently available estimates
and judgments, and presents, to the best of management’s knowledge and belief, the expected course of action and the expected
future financial performance of the Company. However, this information is not fact and should not be relied upon as being necessarily
indicative of future results, and readers of this proxy statement are cautioned not to place undue reliance on the prospective
financial information.
Neither CHAC’s independent auditors,
nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the prospective financial
information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability,
and assume no responsibility for, and disclaim any association with, the prospective financial information.
The combined company does
not intend to update or otherwise revise the prospective financial information to reflect circumstances existing since its preparation
or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown
to be in error. Furthermore, the combined company does not intend to update or revise the prospective financial information to
reflect changes in general economic or industry conditions.
Case
A Forecasts (15.4% WACC)
|
|
|
|
|
Fiscal years
ended December 31 ($ in millions)
|
|
|
|
|
|
|
2019E
|
|
|
2020E
|
|
|
2021E
|
|
|
2022E
|
|
|
2023E
|
|
|
2024E
|
|
|
2025E
|
|
|
2026E
|
|
|
2027E
|
|
|
2028E
|
|
|
2029E
|
|
|
2030E
|
|
Total
Revenues (1)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5
|
|
|
|
12
|
|
|
|
23
|
|
|
|
52
|
|
|
|
114
|
|
|
|
245
|
|
|
|
468
|
|
|
|
646
|
|
BX001 (cosmetic
product, 40% probability of launch) (royalties)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5
|
|
|
|
12
|
|
|
|
23
|
|
|
|
33
|
|
|
|
42
|
|
|
|
48
|
|
|
|
52
|
|
|
|
54
|
|
BX002 (Rx product,
15% probabilty of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5
|
|
|
|
27
|
|
|
|
95
|
|
|
|
202
|
|
|
|
299
|
|
BX003 (Rx product,
10% probability of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
13
|
|
|
|
45
|
|
|
|
87
|
|
|
|
161
|
|
|
|
216
|
|
Colorectal / other
cancer (Rx product, <2.5% probability of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1
|
|
|
|
13
|
|
|
|
34
|
|
|
|
49
|
|
Other long-term
pipeline (<1% probability of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1
|
|
|
|
18
|
|
|
|
28
|
|
Gross Profit (2)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5
|
|
|
|
12
|
|
|
|
23
|
|
|
|
41
|
|
|
|
90
|
|
|
|
194
|
|
|
|
371
|
|
|
|
514
|
|
Operating Income
(3)
|
|
|
|
|
|
|
(19
|
)
|
|
|
(21
|
)
|
|
|
(25
|
)
|
|
|
(30
|
)
|
|
|
(29
|
)
|
|
|
(27
|
)
|
|
|
(24
|
)
|
|
|
(15
|
)
|
|
|
23
|
|
|
|
72
|
|
|
|
179
|
|
|
|
305
|
|
Unlevered Free
Cash Flow (4)
|
|
|
|
|
|
|
(10
|
)
|
|
|
(21
|
)
|
|
|
(26
|
)
|
|
|
(31
|
)
|
|
|
(35
|
)
|
|
|
(28
|
)
|
|
|
(25
|
)
|
|
|
(22
|
)
|
|
|
19
|
|
|
|
53
|
|
|
|
131
|
|
|
|
239
|
|
Present Value of
Unlevered Free Cash Flow (WACC = 15.4%)
|
|
|
|
|
|
|
(10
|
)
|
|
|
(18
|
)
|
|
|
(19
|
)
|
|
|
(20
|
)
|
|
|
(20
|
)
|
|
|
(14
|
)
|
|
|
(10
|
)
|
|
|
(8
|
)
|
|
|
6
|
|
|
|
15
|
|
|
|
31
|
|
|
|
49
|
|
Sum of PV of Forecasted
Unlevered Free Cash Flow
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminal Value
(2.0% perpetuity growth rate, WACC = 15.4%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1829
|
|
Present Value of Terminal Value (WACC
= 15.4%)
|
|
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Value
|
|
|
361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Value
|
|
|
473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Value per Diluted Share
|
|
|
16.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Case
A Forecasts (13.4% WACC)
|
|
|
|
|
Fiscal
years ended December 31 ($ in millions)
|
|
|
|
|
|
|
2019E
|
|
|
2020E
|
|
|
2021E
|
|
|
2022E
|
|
|
2023E
|
|
|
2024E
|
|
|
2025E
|
|
|
2026E
|
|
|
2027E
|
|
|
2028E
|
|
|
2029E
|
|
|
2030E
|
|
Total
Revenues (1)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5
|
|
|
|
12
|
|
|
|
23
|
|
|
|
52
|
|
|
|
114
|
|
|
|
245
|
|
|
|
468
|
|
|
|
646
|
|
BX001 (cosmetic
product, 40% probability of launch) (royalties)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5
|
|
|
|
12
|
|
|
|
23
|
|
|
|
33
|
|
|
|
42
|
|
|
|
48
|
|
|
|
52
|
|
|
|
54
|
|
BX002 (Rx product,
15% probability of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5
|
|
|
|
27
|
|
|
|
95
|
|
|
|
202
|
|
|
|
299
|
|
BX003 (Rx product,
10% probability of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
13
|
|
|
|
45
|
|
|
|
87
|
|
|
|
161
|
|
|
|
216
|
|
Colorectal / other
cancer (Rx product, <2.5% probability of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1
|
|
|
|
13
|
|
|
|
34
|
|
|
|
49
|
|
Other long-term
pipeline (<1% probability of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1
|
|
|
|
18
|
|
|
|
28
|
|
Gross Profit (2)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5
|
|
|
|
12
|
|
|
|
23
|
|
|
|
41
|
|
|
|
90
|
|
|
|
194
|
|
|
|
371
|
|
|
|
514
|
|
Operating Income
(3)
|
|
|
|
|
|
|
(19
|
)
|
|
|
(21
|
)
|
|
|
(25
|
)
|
|
|
(30
|
)
|
|
|
(29
|
)
|
|
|
(27
|
)
|
|
|
(24
|
)
|
|
|
(15
|
)
|
|
|
23
|
|
|
|
72
|
|
|
|
179
|
|
|
|
305
|
|
Unlevered Free
Cash Flow (4)
|
|
|
|
|
|
|
(10
|
)
|
|
|
(21
|
)
|
|
|
(26
|
)
|
|
|
(31
|
)
|
|
|
(35
|
)
|
|
|
(28
|
)
|
|
|
(25
|
)
|
|
|
(22
|
)
|
|
|
19
|
|
|
|
53
|
|
|
|
131
|
|
|
|
239
|
|
Present Value of
Unlevered Free Cash Flow (WACC = 13.4%)
|
|
|
|
|
|
|
(10
|
)
|
|
|
(18
|
)
|
|
|
(20
|
)
|
|
|
(21
|
)
|
|
|
(21
|
)
|
|
|
(15
|
)
|
|
|
(12
|
)
|
|
|
(9
|
)
|
|
|
7
|
|
|
|
17
|
|
|
|
37
|
|
|
|
60
|
|
Sum of PV of Forecasted
Unlevered Free Cash Flow
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminal Value
(2.0% perpetuity growth rate, WACC = 13.4%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2150
|
|
Present Value of Terminal Value (WACC
= 13.4%)
|
|
|
539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Value
|
|
|
535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Value
|
|
|
646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Value per Diluted Share
|
|
|
22.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Total
Revenues, as presented herein, reflects company revenues, inclusive of royalty revenues.
|
(2)
|
Gross
Profit, as presented herein, reflects Total Revenues, less product cost of goods sold,
less royalty payments, and less milestone payments.
|
(3)
|
Operating
Income, as presented herein, reflects Gross Profit, less research and development expenses,
less sales and marketing expenses, less general and administrative expenses, and less
other operating income and expenses.
|
(4)
|
Unlevered
Free Cash Flow, as presented herein, reflects Operating Income, less tax expenses, plus
depreciation and amortization, less capital expenditures, less changes in working capital,
plus deferred taxes, and plus other non-cash items. Unlevered free cash flow is a non-GAAP
financial measure. Non-GAAP financial measures should not be considered a substitute
for, or superior to, financial measures determined or calculated in accordance with GAAP.
Additionally, non-GAAP financial measures as presented in this document may not be comparable
to similarly titled measures reported by other companies.
|
Case B Forecasts (15.4% WACC)
|
|
|
|
|
Fiscal years
ended December 31 ($ in millions)
|
|
|
|
|
|
|
2019E
|
|
|
2020E
|
|
|
2021E
|
|
|
2022E
|
|
|
2023E
|
|
|
2024E
|
|
|
2025E
|
|
|
2026E
|
|
|
2027E
|
|
|
2028E
|
|
|
2029E
|
|
|
2030E
|
|
Total
Revenues (1)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
7
|
|
|
|
18
|
|
|
|
34
|
|
|
|
78
|
|
|
|
177
|
|
|
|
391
|
|
|
|
762
|
|
|
|
1058
|
|
BX001 (cosmetic
product, 60% probability of launch) (royalties)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
7
|
|
|
|
18
|
|
|
|
34
|
|
|
|
50
|
|
|
|
63
|
|
|
|
72
|
|
|
|
77
|
|
|
|
82
|
|
BX002 (Rx product,
25% probabilty of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
8
|
|
|
|
45
|
|
|
|
159
|
|
|
|
337
|
|
|
|
499
|
|
BX003 (Rx product,
15% probabilty of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
20
|
|
|
|
67
|
|
|
|
131
|
|
|
|
242
|
|
|
|
324
|
|
Colorectal / other
cancer (Rx product, <5% probability of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2
|
|
|
|
27
|
|
|
|
69
|
|
|
|
98
|
|
Other long-term
pipeline (<2% probability of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3
|
|
|
|
36
|
|
|
|
55
|
|
Gross Profit (2)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
7
|
|
|
|
18
|
|
|
|
34
|
|
|
|
62
|
|
|
|
139
|
|
|
|
310
|
|
|
|
604
|
|
|
|
841
|
|
Operating Income
(3)
|
|
|
|
|
|
|
(19
|
)
|
|
|
(21
|
)
|
|
|
(25
|
)
|
|
|
(30
|
)
|
|
|
(30
|
)
|
|
|
(28
|
)
|
|
|
(26
|
)
|
|
|
(17
|
)
|
|
|
36
|
|
|
|
115
|
|
|
|
291
|
|
|
|
499
|
|
Unlevered Free
Cash Flow (4)
|
|
|
|
|
|
|
(10
|
)
|
|
|
(21
|
)
|
|
|
(26
|
)
|
|
|
(31
|
)
|
|
|
(36
|
)
|
|
|
(29
|
)
|
|
|
(27
|
)
|
|
|
(28
|
)
|
|
|
30
|
|
|
|
84
|
|
|
|
214
|
|
|
|
392
|
|
Present Value of
Unlevered Free Cash Flow (WACC = 15.4%)
|
|
|
|
|
|
|
(10
|
)
|
|
|
(18
|
)
|
|
|
(19
|
)
|
|
|
(20
|
)
|
|
|
(20
|
)
|
|
|
(14
|
)
|
|
|
(11
|
)
|
|
|
(10
|
)
|
|
|
9
|
|
|
|
23
|
|
|
|
51
|
|
|
|
81
|
|
Sum of PV of Forecasted
Unlevered Free Cash Flow
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminal Value
(2.0% perpetuity growth rate, WACC = 15.4%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3002
|
|
Present Value of Terminal Value (WACC
= 15.4%)
|
|
|
621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Value
|
|
|
663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Value
|
|
|
774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Value per Diluted Share
|
|
|
27.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Case B Forecasts (13.4% WACC)
|
|
|
|
|
Fiscal years
ended December 31 ($ in millions)
|
|
|
|
|
|
|
2019E
|
|
|
2020E
|
|
|
2021E
|
|
|
2022E
|
|
|
2023E
|
|
|
2024E
|
|
|
2025E
|
|
|
2026E
|
|
|
2027E
|
|
|
2028E
|
|
|
2029E
|
|
|
2030E
|
|
Total Revenues
(1)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
7
|
|
|
|
18
|
|
|
|
34
|
|
|
|
78
|
|
|
|
177
|
|
|
|
391
|
|
|
|
762
|
|
|
|
1058
|
|
BX001 (cosmetic
product, 60% probability of launch) (royalties)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
7
|
|
|
|
18
|
|
|
|
34
|
|
|
|
50
|
|
|
|
63
|
|
|
|
72
|
|
|
|
77
|
|
|
|
82
|
|
BX002 (Rx product,
25% probabilty of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
8
|
|
|
|
45
|
|
|
|
159
|
|
|
|
337
|
|
|
|
499
|
|
BX003 (Rx product,
15% probabilty of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
20
|
|
|
|
67
|
|
|
|
131
|
|
|
|
242
|
|
|
|
324
|
|
Colorectal / other
cancer (Rx product, <5% probability of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2
|
|
|
|
27
|
|
|
|
69
|
|
|
|
98
|
|
Other long-term
pipeline (<2% probability of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3
|
|
|
|
36
|
|
|
|
55
|
|
Gross Profit (2)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
7
|
|
|
|
18
|
|
|
|
34
|
|
|
|
62
|
|
|
|
139
|
|
|
|
310
|
|
|
|
604
|
|
|
|
841
|
|
Operating Income (3)
|
|
|
|
|
|
|
(19
|
)
|
|
|
(21
|
)
|
|
|
(25
|
)
|
|
|
(30
|
)
|
|
|
(30
|
)
|
|
|
(28
|
)
|
|
|
(26
|
)
|
|
|
(17
|
)
|
|
|
36
|
|
|
|
115
|
|
|
|
291
|
|
|
|
499
|
|
Unlevered Free Cash Flow
(4)
|
|
|
|
|
|
|
(10
|
)
|
|
|
(21
|
)
|
|
|
(26
|
)
|
|
|
(31
|
)
|
|
|
(36
|
)
|
|
|
(29
|
)
|
|
|
(27
|
)
|
|
|
(28
|
)
|
|
|
30
|
|
|
|
84
|
|
|
|
214
|
|
|
|
392
|
|
Present Value of Unlevered
Free Cash Flow (WACC = 13.4%)
|
|
|
|
|
|
|
(10
|
)
|
|
|
(18
|
)
|
|
|
(20
|
)
|
|
|
(21
|
)
|
|
|
(22
|
)
|
|
|
(15
|
)
|
|
|
(13
|
)
|
|
|
(12
|
)
|
|
|
11
|
|
|
|
27
|
|
|
|
61
|
|
|
|
98
|
|
Sum of PV of Forecasted
Unlevered Free Cash Flow
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminal Value (2.0%
perpetuity growth rate, WACC = 13.4%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3529
|
|
Present Value of Terminal Value (WACC =
13.4%)
|
|
|
885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Value
|
|
|
951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Value
|
|
|
1063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Value per Diluted Share
|
|
|
37.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Total
Revenues, as presented herein, reflects company revenues, inclusive of royalty revenues.
|
|
(2)
|
Gross
Profit, as presented herein, reflects Total Revenues, less product cost of goods sold,
less royalty payments, and less milestone payments.
|
|
(3)
|
Operating
Income, as presented herein, reflects Gross Profit, less research and development expenses,
less sales and marketing expenses, less general and administrative expenses, and less
other operating income and expenses.
|
|
(4)
|
Unlevered
Free Cash Flow, as presented herein, reflects Operating Income, less tax expenses, plus
depreciation and amortization, less capital expenditures, less changes in working capital,
plus deferred taxes, and plus other non-cash items. Unlevered free cash flow is a non-GAAP
financial measure. Non-GAAP financial measures should not be considered a substitute
for, or superior to, financial measures determined or calculated in accordance with GAAP.
Additionally, non-GAAP financial measures as presented in this document may not be comparable
to similarly titled measures reported by other companies.
|
Case C Forecasts
(15.4% WACC)
|
|
|
|
|
Fiscal years
ended December 31 ($ in millions)
|
|
|
|
|
|
|
2019E
|
|
|
2020E
|
|
|
2021E
|
|
|
2022E
|
|
|
2023E
|
|
|
2024E
|
|
|
2025E
|
|
|
2026E
|
|
|
2027E
|
|
|
2028E
|
|
|
2029E
|
|
|
2030E
|
|
Total Revenues
(1)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
12
|
|
|
|
31
|
|
|
|
57
|
|
|
|
130
|
|
|
|
291
|
|
|
|
642
|
|
|
|
1247
|
|
|
|
1730
|
|
BX001 (cosmetic
product, 100% probability of launch) (royalties)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
12
|
|
|
|
31
|
|
|
|
57
|
|
|
|
84
|
|
|
|
105
|
|
|
|
120
|
|
|
|
129
|
|
|
|
136
|
|
BX002 (Rx product,
40% probability of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
13
|
|
|
|
72
|
|
|
|
255
|
|
|
|
540
|
|
|
|
798
|
|
BX003 (Rx product,
25% probability of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
33
|
|
|
|
112
|
|
|
|
218
|
|
|
|
404
|
|
|
|
540
|
|
Colorectal / other
cancer (Rx product, <7.5% probability of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3
|
|
|
|
44
|
|
|
|
115
|
|
|
|
164
|
|
Other long-term
pipeline (<3% probability of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5
|
|
|
|
60
|
|
|
|
92
|
|
Gross Profit (2)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
12
|
|
|
|
31
|
|
|
|
57
|
|
|
|
102
|
|
|
|
230
|
|
|
|
508
|
|
|
|
989
|
|
|
|
1375
|
|
Operating Income (3)
|
|
|
|
|
|
|
(19
|
)
|
|
|
(21
|
)
|
|
|
(25
|
)
|
|
|
(30
|
)
|
|
|
(29
|
)
|
|
|
(27
|
)
|
|
|
(25
|
)
|
|
|
(14
|
)
|
|
|
59
|
|
|
|
188
|
|
|
|
477
|
|
|
|
817
|
|
Unlevered Free Cash Flow
(4)
|
|
|
|
|
|
|
(10
|
)
|
|
|
(21
|
)
|
|
|
(26
|
)
|
|
|
(31
|
)
|
|
|
(35
|
)
|
|
|
(27
|
)
|
|
|
(25
|
)
|
|
|
(35
|
)
|
|
|
51
|
|
|
|
136
|
|
|
|
353
|
|
|
|
642
|
|
Present Value of Unlevered
Free Cash Flow (WACC = 15.4%)
|
|
|
|
|
|
|
(10
|
)
|
|
|
(18
|
)
|
|
|
(19
|
)
|
|
|
(20
|
)
|
|
|
(20
|
)
|
|
|
(13
|
)
|
|
|
(11
|
)
|
|
|
(13
|
)
|
|
|
16
|
|
|
|
38
|
|
|
|
84
|
|
|
|
133
|
|
Sum of PV of Forecasted
Unlevered Free Cash Flow
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminal Value (2.0%
perpetuity growth rate, WACC = 15.4%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4915
|
|
Present Value of Terminal Value (WACC =
15.4%)
|
|
|
1017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Value
|
|
|
1164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Value
|
|
|
1276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Value per Diluted Share
|
|
|
45.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Case
C Forecasts (13.4% WACC)
|
|
|
|
|
Fiscal years
ended December 31 ($ in millions)
|
|
|
|
|
|
|
2019E
|
|
|
2020E
|
|
|
2021E
|
|
|
2022E
|
|
|
2023E
|
|
|
2024E
|
|
|
2025E
|
|
|
2026E
|
|
|
2027E
|
|
|
2028E
|
|
|
2029E
|
|
|
2030E
|
|
Total Revenues
(1)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
12
|
|
|
|
31
|
|
|
|
57
|
|
|
|
130
|
|
|
|
291
|
|
|
|
642
|
|
|
|
1247
|
|
|
|
1730
|
|
BX001 (cosmetic
product, 100% probability of launch) (royalties)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
12
|
|
|
|
31
|
|
|
|
57
|
|
|
|
84
|
|
|
|
105
|
|
|
|
120
|
|
|
|
129
|
|
|
|
136
|
|
BX002 (Rx product,
40% probability of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
13
|
|
|
|
72
|
|
|
|
255
|
|
|
|
540
|
|
|
|
798
|
|
BX003 (Rx product,
25% probability of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
33
|
|
|
|
112
|
|
|
|
218
|
|
|
|
404
|
|
|
|
540
|
|
Colorectal / other
cancer (Rx product, <7.5% probability of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3
|
|
|
|
44
|
|
|
|
115
|
|
|
|
164
|
|
Other long-term
pipeline (<3% probability of launch)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5
|
|
|
|
60
|
|
|
|
92
|
|
Gross Profit (2)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
12
|
|
|
|
31
|
|
|
|
57
|
|
|
|
102
|
|
|
|
230
|
|
|
|
508
|
|
|
|
989
|
|
|
|
1375
|
|
Operating Income (3)
|
|
|
|
|
|
|
(19
|
)
|
|
|
(21
|
)
|
|
|
(25
|
)
|
|
|
(30
|
)
|
|
|
(29
|
)
|
|
|
(27
|
)
|
|
|
(25
|
)
|
|
|
(14
|
)
|
|
|
59
|
|
|
|
188
|
|
|
|
477
|
|
|
|
817
|
|
Unlevered Free Cash Flow
(4)
|
|
|
|
|
|
|
(10
|
)
|
|
|
(21
|
)
|
|
|
(26
|
)
|
|
|
(31
|
)
|
|
|
(35
|
)
|
|
|
(27
|
)
|
|
|
(25
|
)
|
|
|
(35
|
)
|
|
|
51
|
|
|
|
136
|
|
|
|
353
|
|
|
|
642
|
|
Present Value of Unlevered
Free Cash Flow (WACC = 13.4%)
|
|
|
|
|
|
|
(10
|
)
|
|
|
(18
|
)
|
|
|
(20
|
)
|
|
|
(21
|
)
|
|
|
(21
|
)
|
|
|
(14
|
)
|
|
|
(12
|
)
|
|
|
(14
|
)
|
|
|
19
|
|
|
|
44
|
|
|
|
100
|
|
|
|
161
|
|
Sum of PV of Forecasted
Unlevered Free Cash Flow
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminal Value (2.0%
perpetuity growth rate, WACC = 13.4%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5777
|
|
Present Value of Terminal Value
(WACC = 13.4%)
|
|
|
1449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Value
|
|
|
1641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Value
|
|
|
1753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Value per Diluted Share
|
|
|
62.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Total
Revenues, as presented herein, reflects company revenues, inclusive of royalty revenues.
|
|
(2)
|
Gross
Profit, as presented herein, reflects Total Revenues, less product cost of goods sold,
less royalty payments, and less milestone payments.
|
|
(3)
|
Operating
Income, as presented herein, reflects Gross Profit, less research and development expenses,
less sales and marketing expenses, less general and administrative expenses, and less
other operating income and expenses.
|
|
(4)
|
Unlevered
Free Cash Flow, as presented herein, reflects Operating Income, less tax expenses, plus
depreciation and amortization, less capital expenditures, less changes in working capital,
plus deferred taxes, and plus other non-cash items. Unlevered free cash flow is a non-GAAP
financial measure. Non-GAAP financial measures should not be considered a substitute
for, or superior to, financial measures determined or calculated in accordance with GAAP.
Additionally, non-GAAP financial measures as presented in this document may not be comparable
to similarly titled measures reported by other companies.
|
Cautionary
Statement Regarding the CHAC Forecasts
The
inclusion in this proxy statement of the CHAC forecasts and of certain analyses referencing such forecasts should not be seen
as an indication that BiomX, CHAC or their respective boards of directors, management, affiliates, advisors, or any other related
parties consider the forecasts predictive of actual future financial performance or events, and such forecasts should not be relied
upon as such. All such parties cannot provide any assurance whatsoever that actual results will be consistent or even partially
consistent with the forecasts provided. Indeed, actual results may differ profoundly from projections due to various uncertainties,
and none of aforementioned parties undertakes any obligation to update, revise, reconcile, or confirm or disconfirm any forecasts
based on circumstances arising after the date at which listed forecasts were generated, based on future events or any other factors.
None of BiomX or CHAC or any of their respective affiliated parties intends to make publicly available any updates to the forecasts
in this document, except as required by law.
The
financial forecasts prepared by management of CHAC were not prepared with a view toward public disclosure nor prepared with a
view toward compliance with the guidelines established by the American Institute of Certified Public Accountants for preparation
and presentation of prospective financial information, or in accordance with GAAP. Neither the independent registered public accounting
firm of BiomX nor of CHAC nor any other independent accountant has audited, reviewed, compiled, examined or performed any procedures
with respect to the unaudited prospective financial information for the purpose of its inclusion in this proxy statement, and
accordingly, neither independent registered public accounting firm nor any other independent accountant expresses an opinion or
provides any form of assurance with respect thereto. Due to inherent uncertainties in financial projections of any kind, stockholders
are cautioned not to place undue reliance, if any, on the forecasts. Forecasts are subjective in nature and may not be realized,
and reflect numerous assumptions made by management, including material assumptions regarding, among other things, timing of clinical
trials, patient enrollment, timing of receipt of regulatory approvals that may be needed, characterization of the product candidates,
the timing of, and amounts of, any royalty payments, milestone payments or other payments due to third parties by BiomX, the entry
by BiomX into license or collaboration agreements, market size, commercial efforts, industry performance, general business and
economic conditions and numerous other matters that may not be realized and are subject to significant uncertainties and contingencies,
all of which are difficult to predict and many of which are beyond the control of the preparing party.
There
may be differences between actual and projected results, and the differences may be material. The risk that these uncertainties
and contingencies could cause the assumptions to fail to be reflective of actual results is further increased by the length of
time over which these assumptions apply. The failure to achieve assumptions and projections in early periods could have a compounding
effect on the projections shown for the later periods. Thus, any such failure of an assumption or projection to be reflective
of actual results in an early period could have a greater effect on the projected results failing to be reflective of actual events
in later periods. BiomX is a preclinical stage company, without a regulatorily-approved product, and as discussed elsewhere in
this proxy statement, its business is subject to numerous risks. In the context of a preclinical stage company projections
are inherently unreliable given the many variables, especially in later years, that may affect results.
All
financial forecasts are “forward-looking statements” within the meaning of the “safe harbor” provisions
of the U.S. Private Securities Litigation Reform Act of 1995. See “Special Note Regarding Forward-Looking Statements.”
In
light of the foregoing factors and the uncertainties inherent in these projections, stockholders are cautioned not to place undue,
if any, reliance on these projections.
Other
CHAC Considerations
The
Board of Directors focused its analysis on whether the Business Combination is likely to generate a return for CHAC’s stockholders
that is greater than if the trust were to be liquidated. Our Board of Directors unanimously concluded that the Merger Agreement
with BiomX is fair to and in the best interests of the CHAC stockholders. The Board of Directors did not obtain a fairness opinion
on which to base its assessment. Because of the financial skills and background of its members, the Board of Directors believes
it was qualified to perform the analysis discussed in this section.
Recommendation
of CHAC’s Board of Directors
After
careful consideration, CHAC’s Board of Directors determined that the Business Combination with BiomX is fair to, and in
the best interests of, CHAC and its stockholders. On the basis of the foregoing, CHAC’s Board of Directors has approved
and declared advisable the Business Combination and recommends that you vote or give instructions to vote “FOR” each
of the Business Combination Proposal and the other proposals.
CHAC’s Board of Directors
have interests that may be different from, or in addition to your interests as a stockholder. See “The Business Combination
Proposal— Interests of Certain Persons in the Business Combination” for further information.
Interests
of Certain Persons in the Business Combination
When
you consider the recommendation of CHAC’s Board of Directors in favor of adoption of the Business Combination Proposal and
other proposals, you should keep in mind that CHAC’s directors and officers have interests in the Business Combination that
are different from, or in addition to, your interests as a stockholder, including:
|
●
|
If the proposed Business
Combination is not completed by the date that is 24 months from the closing of the Initial Public Offering, or December 18,
2020, the 1,750,000 Founder Shares held by CHAC’s Sponsor and other initial stockholders, which were acquired prior
to the Initial Public Offering for an aggregate purchase price of $25,000, will be worthless. Such CHAC Shares had an aggregate
market value of approximately [$●] based on the closing price of CHAC Shares of [$●] on the NYSE American
Stock Exchange as of [September 17], 2019.
|
|
●
|
If the proposed Business
Combination is not completed by the date that is 24 months from the closing of the Initial Public Offering, or December 18,
2020, the 2,900,000 Private CHAC Warrants purchased by Mountain Wood, LLC, an affiliate of our Sponsor, for a total purchase
price of $1,160,000, will be worthless. Such Private CHAC Warrants had an aggregate market value of approximately [$●]
based on the closing price of CHAC’s warrants of $[●] on the NYSE American Stock Exchange as of [September 17],
2019.
|
|
●
|
The
exercise of CHAC’s directors’ and officers’ discretion in agreeing
to changes or waivers in the terms of the transaction may result in a conflict of interest
when determining whether such changes or waivers are appropriate and in our stockholders’
best interest.
|
|
●
|
If the Business Combination
with BiomX is completed, CHAC will designate two members to the Board of Directors of the Merger Sub, both of whom are current
officers and directors of CHAC.
|
Anticipated
Accounting Treatment
The Business Combination will be treated by CHAC as a “reverse merger” in accordance with
GAAP. For accounting purposes, BiomX is considered to be acquiring CHAC in this transaction. Therefore, for accounting purposes,
the Business Combination will be treated as the equivalent of a capital transaction in which BiomX is issuing stock for the
net assets of CHAC. The net assets of CHAC will be stated at historical cost, with no goodwill or other intangible assets recorded.
The post-acquisition financial statements of CHAC will show the consolidated balances and transactions of CHAC and BiomX as well
as comparative financial information of BiomX (the acquirer for accounting purposes).
Regulatory
Approvals
The Business Combination and
the other transactions contemplated by the Merger Agreement are not subject to any additional federal or state regulatory requirements
or approvals, including the Hart-Scott Rodino Antitrust Improvements Act of 1976, except for a filing with the Israeli Registrar
of Companies necessary to effectuate the transactions contemplated by the Merger Agreement.
THE
MERGER AGREEMENT
The
following is a summary of the material provisions of the Merger Agreement, a copy of which is attached as Annex A to this
proxy statement. You are encouraged to read the Merger Agreement in its entirety for a more complete description of the terms
and conditions of the Business Combination.
Acquisition of BiomX; Consideration
Upon the closing of the transactions contemplated
in the Merger Agreement (the “Closing”), Merger Sub will merge (the “Merger”) with and into BiomX, resulting
in BiomX becoming a wholly owned subsidiary of CHAC.
As a result of the Business Combination,
subject to reduction for indemnification claims as described below, an aggregate of 16,625,000 shares of CHAC common stock will
be issued (or reserved for issuance pursuant to currently exercisable options or warrants) in respect of shares of BiomX capital
stock, and vested options and vested warrants to purchase shares of BiomX capital stock, in each case, issued and outstanding
immediately prior to the Closing. Additional shares of CHAC common stock will be reserved for issuance in respect of options or
warrants to purchase shares of BiomX capital stock that are issued, outstanding and unvested as of immediately prior to the Closing.
The parties agreed that immediately following
the closing of the Business Combination, CHAC’s board of directors will consist of no more than seven directors, two of which
will be designated by the Sponsor and five of which will be designated by BiomX.
Stockholder Approval
Prior to the consummation of the Business
Combination, the holders of a majority of CHAC’s common stock attending a stockholder’s meeting (at which there is
a quorum) must approve the transactions contemplated by the Merger Agreement (the “Stockholder Approval”). In connection
with obtaining the Stockholder Approval, CHAC must call a special meeting of its common stockholders and must prepare and file
with the SEC a Proxy Statement on Schedule 14A, which will be mailed to all stockholders entitled to vote at the meeting.
Representations and Warranties
In the Merger Agreement, BiomX makes certain
representations and warranties (with certain exceptions set forth in the disclosure schedule to the Merger Agreement) relating
to, among other things: (a) proper corporate organization of BiomX and its subsidiaries and similar corporate matters; (b) authorization,
execution, delivery and enforceability of the Merger Agreement and other transaction documents; (c) absence of conflicts; (d)
capital structure; (e) accuracy of charter and governing documents; (f) affiliate transactions; (g) required consents and approvals;
(h) financial information; (i) absence of certain changes or events; (j) title to assets and properties; (k) material contracts;
(l) insurance; (m) licenses and permits; (n) compliance with laws, including those relating to foreign corrupt practices and money
laundering; (o) ownership of intellectual property; (p) employment and labor matters; (q) taxes and audits; (r) environmental
matters; (s) brokers and finders; and (t) other customary representations and warranties.
In the Merger Agreement, CHAC makes certain
representations and warranties relating to, among other things: (a) proper corporate organization and similar corporate matters;
(b) authorization, execution, delivery and enforceability of the Merger Agreement and other transaction documents; (c) brokers
and finders; (d) capital structure; (e) validity of share issuance; (f) minimum trust fund amount; (g) Nasdaq listing; and (h)
SEC filing requirements.
Conduct Prior to Closing; Covenants
The Merger Agreement contains certain customary
covenants of CHAC and BiomX, including, among others, the following:
|
●
|
BiomX has agreed to operate its business in the ordinary course prior to the closing of the Business Combination
(with certain exceptions) and not to take certain specified actions without the prior written consent of CHAC.
|
|
●
|
CHAC has agreed to operate its business in the ordinary course prior to the closing of the Business Combination
(with certain exceptions) and not to take certain specified actions without the prior written consent of BiomX.
|
In addition, the parties agreed to take
the following actions, among others, before the completion of the Business Combination:
|
●
|
CHAC
and BiomX shall use their commercially reasonable efforts to cause:
|
|
●
|
the immediately available funds contained in CHAC’s trust account (net of any redemption amounts)
available for release to CHAC immediately following the closing of the Business Combination (but prior to the payment of any expenses
of CHAC), plus the immediately available funds deposited by third party investors into an escrow account established for the purposes
of holding the cash proceeds paid by such third party investors to purchase CHAC Shares from current CHAC public stockholders to
equal or exceed $30,000,000; and
|
|
●
|
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 CHAC Shares from current CHAC public stockholders, to equal or exceed $20,000,000.
|
|
●
|
Prior to the Closing, BiomX will amend its existing equity
incentive plan (or adopt a new equity incentive plan having the same effect that will be assumed by CHAC as of the Closing),
to include: (a) an “evergreen” provision that will provide for an automatic increase on an annual basis in the
number of shares available for issuance under BiomX’s existing equity incentive plan (or such new equity incentive
plan) equal to an amount as determined by the compensation committee, not to exceed on an annual basis four percent (4%) of
the total number of shares of CHAC common stock then-issued and outstanding; and (b) such other terms as are customary for a
company whose securities are traded on the NYSE American Stock Exchange or any similar exchange in the United States of
America.
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Conditions
to Closing
General
Conditions
The obligation of CHAC and BiomX
to consummate the Business Combination is conditioned on, among other things, (a) the absence of any order, stay, judgment or
decree by any government agency restraining or prohibiting or imposing any condition on the closing of the Business
Combination; (b) at least 50 days shall have elapsed after the filing of a merger proposal with the Registrar of Companies of
the State of Israel (the “Registrar of Companies”), and at least 30 days shall have elapsed after the approval of
the Business Combination by the shareholders of each of BiomX and Merger Sub, and the certificate of merger shall have been
received from the Registrar of Companies; (c) all necessary governmental approvals having been obtained; (d) the absence of
any litigation brought by a governmental agency seeking to enjoin or otherwise restrict the consummation of the Business
Combination; (e) CHAC’s initial listing application with the NYSE American Stock Exchange in connection with the
transactions contemplated by the Merger Agreement shall have been approved, immediately following the Closing CHAC shall
satisfy any applicable initial and continuing listing requirements of the NYSE American Stock Exchange and CHAC shall not
have received any notice of non-compliance therewith, and the CHAC common stock shall have been approved for listing on the
NYSE American Stock Exchange, subject to completion of the Business Combination; and (f) each of CHAC and BiomX shall have
obtained the approval of its stockholders. The BiomX shareholders approved the Business Combination at an extraordinary
general meeting held on August 19, 2019.
BiomX’s
Conditions to Closing
The
obligations of BiomX to consummate the transactions contemplated by the Merger Agreement, in addition to the conditions described
above, are conditioned upon, among other things, each of the following:
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CHAC
complying in all material respects with all of its obligations required to be performed
pursuant to the covenants in the Merger Agreement.
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The
Aggregate Investment Amount shall equal or exceed $50,000,000.
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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.
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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.
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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 CHAC Shares from current CHAC public stockholders, shall equal or exceed
$20,000,000.
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CHAC’s
Conditions to Closing
The
obligations of CHAC to consummate the transactions contemplated by the Merger Agreement, in addition to the conditions described
above in the first paragraph of this section, are conditioned upon, among other things, each of the following:
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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.
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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 CHAC Shares from current CHAC public stockholders, shall equal or exceed
$20,000,000.
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Indemnification
From
and after the Closing, holders of shares of BiomX capital stock and vested warrants to purchase shares of BiomX capital stock
(collectively, the “Escrow Participants”) have agreed to indemnify and hold harmless CHAC against and in respect
of specified actual and direct out-of-pocket losses incurred or sustained by CHAC as a result of: (a) any breach or inaccuracy
of any of the representations, warranties set forth in Article V of the Merger Agreement (as modified by the schedules of the
Merger Agreement) or in a specified certificate delivered by BiomX to CHAC at closing, in each case as of the Closing Date,
and (b) any breach or nonfulfillment of any covenants of BiomX contained in the Merger Agreement to be performed prior to the
Closing Date.
Ten
percent of the CHAC Shares issuable to (or reserved for issuance for) the Escrow Participants at the Closing shall be deposited
into a third party escrow account (the “Escrow Shares”) to serve as CHAC’s sole and exclusive security for the
Escrow Participant’s obligation to indemnify CHAC under the Merger Agreement.
Notwithstanding
anything in the Merger Agreement to the contrary:
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CHAC’s
sole and exclusive remedy for all indemnifiable losses under the Merger Agreement shall
be the recovery of a number of CHAC Shares from the Escrow Shares having a value equal
to the losses that have been finally determined to be owing to CHAC in accordance with
the Merger Agreement (at an assumed value equal to the greater of: (i) $10.00 per share;
or (ii) the total amount payable to the stockholders of CHAC holding units or common
stock of CHAC who shall have validly redeemed such units or common stock upon acceptance
by CHAC of such units or common stock (the “Escrow Share Value”)), in each
case, subject to the Indemnifiable Loss Limit (as defined below).
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The
maximum liability of the Escrow Participants under the Merger Agreement or otherwise
in connection with the transactions contemplated by the Merger Agreement shall in no
event exceed an amount equal to: (i) the Escrow Share Value, multiplied by (ii) the Escrow
Shares (the “Indemnifiable Loss Limit”).
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CHAC
shall not be entitled to indemnification pursuant to Section 11.1 of the Merger Agreement
unless and until the aggregate amount of losses to CHAC equals at least $1,246,875 (the
“Basket”), at which time, subject to the other limitations set forth in the
Merger Agreement, CHAC shall be entitled to indemnification for any losses above the
Basket, less $124,687.50 per loss.
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The
Escrow Participants shall have no liability or obligation to indemnify CHAC under the
Merger Agreement with respect to the breach or inaccuracy of any representation, warranty,
covenant or agreement based on any matter, fact or circumstance known to CHAC or any
of its representatives or disclosed in the information set out in any schedule to the
Merger Agreement.
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Nothing
in the Merger Agreement (i) limits the parties’ rights to seek injunctive relief
or other equitable remedies, (ii) would prevent CHAC from bringing an action for fraud
(with scienter) against the Person who committed such fraud (with scienter) or (iv) limit
the right of any person or entity to pursue remedies under any other agreement entered
into in connection with the transactions contemplated by the Merger Agreement against
the parties thereto.
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The
indemnification to which CHAC is entitled from the Escrow Participants pursuant to Section 11.1 of the Merger Agreement for losses
shall be effective so long as it is asserted prior to the expiration of the six (6) month anniversary of the Closing date (the
“Survival Period”); provided, that in the event that any indemnification notice shall have been given by CHAC in accordance
with the provisions of the Merger Agreement (each, an “Indemnification Notice”) prior to the expiration of the Survival
Period and such claim has not been finally resolved by the expiration of the Survival Period, the representations, warranties,
covenants, agreements or obligations that are the subject of such Indemnification Notice shall survive solely for purposes of
resolving such claim until such matters are finally resolved.
Termination
The
Merger Agreement may be terminated and/or abandoned at any time prior to the closing by:
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the
mutual written agreement of BiomX and CHAC;
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CHAC
or BiomX, in the event a governmental authority shall have issued an order, having the
effect of permanently restraining, enjoining or otherwise prohibiting the Merger, which
order is final and non-appealable.
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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; or
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BiomX,
if the closing has not occurred on or prior to the Outside Closing Date; provided, further,
that BiomX is not in material breach of any of its obligations under the Merger Agreement.
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CHAC,
if: (i) BiomX shall have breached any representation, warranty, agreement or covenant
contained in the Merger Agreement to be performed on or prior to the Closing Date, which
has rendered the satisfaction of any of the conditions set forth in Section 10.2 of the
Merger Agreement impossible; and (ii) such breach shall not be cured by the earlier of
the Outside Closing Date and thirty (30) days following receipt by BiomX of a written
notice from CHAC describing in reasonable detail the nature of such breach.
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BiomX,
if: (i) CHAC shall have breached any of its covenants, agreements, representations, and
warranties contained herein to be performed on or prior to the Closing Date, which has
rendered the satisfaction of any of the conditions set forth in Section 10.3 of the Merger
Agreement impossible; and (ii) such breach shall not be cured by the earlier of the Outside
Closing Date and thirty (30) days following receipt by CHAC of a written notice from
BiomX describing in reasonable detail the nature of such breach.
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The foregoing summary of the Merger Agreement does not purport
to be complete and is qualified in its entirety by reference to the actual Merger Agreement, which is filed as Annex A hereto,
and which is incorporated by reference in this report. Terms used herein as defined terms and not otherwise defined herein shall
have the meanings ascribed to them in the Merger Agreement.
Additional Agreements
In addition to the Merger Agreement:
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1.
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The Sponsor, entered into an agreement with BiomX pursuant to which if the Aggregate Investment Amount (as defined in the Merger Agreement), is less than $70,000,000, the Sponsor has agreed to forfeit a number of whole CHAC Shares equal to: (a) 500,000 CHAC Shares; 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 CHAC Shares.
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2.
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Chardan Securities, LLC entered into an agreement with BiomX
pursuant to which it 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 of the Business Combination in the event that the Aggregate Investment Amount would be less than $50 million but
greater than $47,499,999.
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3.
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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 their shares.
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4.
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CHAC and certain
current CHAC public stockholders 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 stockholders
an amount equal to the difference between the redemption price per share at the Closing minus $10.00 per share. 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. In addition, CHAC also agreed to issue such BiomX shareholders
the following number of additional shares in the aggregate subject to the achievement of the conditions specified below:
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a.
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Following the Closing,
if the daily volume weighted average price of a CHAC Share in any 20 trading days within a 30 trading day period prior to
January 1, 2022 is greater than or equal to $16.50 per share, then CHAC shall issue 2,000,000 CHAC Shares.
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b.
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Following the Closing,
if the daily volume weighted average price of a CHAC Share in any 20 trading days within a 30 trading day period prior to
January 1, 2024 is greater than or equal to $22.75 per share, then CHAC shall issue 2,000,000 CHAC Shares.
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c.
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Following the Closing,
if the daily volume weighted average price of a CHAC Share in any 20 trading days within a 30 trading day period prior to
January 1, 2026 is greater than or equal to $29.00 per share, then CHAC shall issue 2,000,000 CHAC Shares.
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5.
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CHAC entered into a letter agreement with certain BiomX shareholders to sell additional CHAC Shares to
them in the event that certain events occur.
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6.
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CHAC entered into agreements with investors that agreed to
purchase up to 810,000 CHAC Shares at CHAC’s request and not to redeem such
CHAC Shares in connection with the Closing.
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7.
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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 stockholders agreed to vote in
favor of the transactions contemplated by the Merger Agreement and not to redeem or
sell to third parties such CHAC Shares.
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8.
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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.
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Except as described above, no consideration was paid by CHAC
in connection with the agreements described above.
THE
SHARE INCREASE PROPOSAL
Purpose
of the Share Increase Proposal
In connection with the transactions
contemplated by the Merger Agreement, CHAC is amending its Amended and Restated Certificate of Incorporation to increase the number
of authorized shares of common stock from 30,000,000 to 60,000,000.
Without amending its Amended and Restated
Certificate of Incorporation, CHAC would not have sufficient shares authorized to consummate the Business Combination and still
have sufficient shares available for potential exercise of the CHAC Warrants (up to 3,500,000 shares) and Private CHAC Warrants
(up to 2,900,000 shares), for the issuance of shares pursuant to agreements with certain stockholders of BiomX (6,000,000 shares),
outstanding options under existing BiomX equity incentive plans (up to approximately 3,836,000), and shares issuable under the
2019 Omnibus Long-Term Incentive Plan which is being presented to stockholders for approval at the Special Meeting (up to an estimated
2,981,000 shares over the course of three years pursuant to the terms of the plan). While CHAC may not be required to issue all
of the shares outlined above, if all of such shares were required to be issued, the total number of outstanding shares would be
approximately 43,000,000, well in excess of the 30,000,000 currently authorized. The additional amount above 43,000,000, or 17,000,000
shares, would be available for future issuance by the combined company from time to time, as determined by the board of directors.
Such additional shares could be issued by the combined company as consideration to acquire other companies or to raise additional
funds for working capital or other purposes without having to obtain stockholder approval.
Except as described in this proxy
statement, there are no present plans or arrangements for the issuance of any additional shares of common stock.
Required
Vote
Approval of the Share Increase Proposal
will require the affirmative vote of a majority of the issued and outstanding common stock entitled to vote at the special meeting.
Board
of Director’s Recommendation
The Board of
Directors recommends a vote “FOR” adoption of the Share Increase Proposal.
THE CLASSIFIED
BOARD PROPOSAL
On September [●], 2019, the CHAC
Board of Directors unanimously approved and recommended that the CHAC stockholders approve an amendment to CHAC’s Amended
and Restated Certificate of Incorporation to classify the Board of Directors into three classes effective on consummation of the
Merger. The following discussion is qualified by the text of the amendment, which is set forth in Annex E attached
to this proxy statement.
If the amendment is approved at the
special meeting, then it will become effective upon filing of the amended Amended and Restated Certificate of Incorporation (the
“Amended Certificate”) with the Secretary of State of the State of Delaware, which filing is expected to occur promptly
following the special meeting.
Purpose and Effect of the Classification of the Board
We are proposing to amend our
Amended and Restated Certificate of Incorporation to classify the Board of Directors into three classes with staggered
terms. Currently, the Board of Directors consists of a single class of directors, all of whom are elected at each annual meeting
of stockholders. The Classified Board Amendment would classify the Board of Directors into three separate classes, Class I, Class
II and Class III, each in as nearly equal in number as possible, with one class being elected each year to serve a staggered three-year
term.
The directors initially appointed
to Class I would serve until the 2020 annual meeting and the election and qualification of his or her successors. The directors
initially appointed to Class II would serve until the 2021 annual meeting and the election and qualification of his or her successors.
The directors initially appointed to Class III would serve until the 2022 annual meeting and the election and qualification of
his or her successors. Beginning with the election of directors to be held at the 2020 annual meeting, and going forward, the
class of directors elected in each year would be elected for a three-year term, so that the term of office of one class of directors
would expire in each year.
To preserve the classified board structure,
the Classified Board Amendment also provides that a director appointed by the Board of Directors to fill a vacancy holds office
until the next election of the class for which such director has been chosen, and until that director’s successor has been
elected and qualified or until his or her earlier death, resignation or removal.
If we adopt a classified board, then,
pursuant to Delaware law and our Amended Certificate, our stockholders will be able to remove a director during the director’s
term only for cause.
The Board of Directors believes that
a staggered board will provide important benefits to our company and its stockholders. A staggered board will help to ensure the
continuity and stability of the combined company’s business strategies and management because a significant number of the
members of the Board of Directors at any given time will have prior experience as directors of our company and will be familiar
with our long-term strategy and goals. This knowledge will assist the directors in fulfilling their duties to our stockholders,
providing for greater effectiveness, which ultimately creates value for our stockholders. Electing directors to three-year terms
will not reduce their accountability to our stockholders. Regardless of their term, all directors will have the same duties and
responsibilities to our stockholders. Additionally, the Board of Directors believes that a staggered board will assist the Board
of Directors in protecting the interests of our stockholders against potentially coercive takeover tactics where a party might
attempt to acquire control of our company on terms that do not offer the greatest value to all stockholders. The proposed Classified
Board Amendment will significantly extend the time required to effect a change in control of the Board of Directors and may discourage
hostile takeover bids for our company.
Required Vote
Approval of the Classified Board Proposal
will require the affirmative vote of a majority of the issued and outstanding common stock entitled to vote at the special meeting.
Board of Director’s Recommendation
The Board of Directors
recommends a vote “FOR” adoption of the Classified Board Proposal.
THE EQUITY PLAN ADOPTION PROPOSAL
The Board of Directors is asking stockholders
to approve the proposed Chardan Healthcare Acquisition Corp. 2019 Omnibus Long-Term Incentive Plan and its Israeli Appendix (“Omnibus
Plan”). The following summary of the Omnibus Plan is qualified in its entirety by the complete text of the Omnibus Plan
contained in Annex D.
Explanation
On [●], 2019, the Board of Directors
approved the Omnibus Plan for submission to the stockholders at the special meeting, to be effective upon consummation of the
Business Combination, provided that it is approved by CHAC stockholders at the special meeting. The Board of Directors is seeking
to reserve 1,000 CHAC Shares for issuance pursuant to the Omnibus Plan. Equity compensation is an important component of our future
executive, employee and director compensation programs. We believe it aligns employee and director compensation with stockholder
interests and motivates participants to achieve long-range goals. Stockholder approval of the Omnibus Plan would permit CHAC Shares
to be awarded as employee incentive compensation, allowing the Board of Directors to attract and retain key employees, provide
them competitive compensation, adapt to evolving compensation practices and account for CHAC’s growth. Upon stockholder
approval, awards to participants will be made pursuant to the Omnibus Plan. We are seeking stockholder approval to make CHAC Shares
available for future grants under the Omnibus Plan as described below.
Purpose of the Omnibus Plan
As described more generally above, the purpose of the Omnibus
Plan is to:
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attract
and retain persons eligible to participate in the Omnibus Plan;
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motivate
eligible individuals to whom awards under the Omnibus Plan will be granted, who we refer to as the “Participants,”
by means of appropriate incentives, to achieve long-range goals;
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provide
incentive compensation opportunities that are competitive with those of other similar companies; and
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further
align Participants’ interests with those of our other stockholders through compensation that is based on CHAC Shares.
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The Omnibus Plan promotes the long-term
financial interest of our company and its subsidiaries, including the growth in value of our company’s equity and enhancement
of long-term stockholder return.
We use equity-based compensation granted
under our long-term incentive plans as a key element of our executives’ compensation packages, and each year we disclose
the prior year grants to and other compensation of our named executive officers in our proxy statement. We believe the Omnibus
Plan assists with linking executives’ overall compensation opportunities to the enhancement of long-term stockholder return.
The Omnibus Plan provides for the grant
of non-qualified and incentive stock options, full value awards, and cash incentive awards. The flexibility inherent in the plan
permits the Board of Directors to change the type, terms and conditions of awards as circumstances may change. We believe that
this flexibility and the resulting ability to more affirmatively adjust the nature and amounts of executive compensation are particularly
important for our industry and to a global company such as ours, given the volatility of the public markets and reactions to economic
and world events. Equity compensation, which aligns the interests of executives and our stockholders, is an important tool for
the Board of Directors.
General Terms of the Omnibus Plan
The Omnibus Plan will be administered
by the Compensation Committee of the Board of Directors (the “Committee”), unless otherwise provided by the Board
of Directors. The Committee selects the Participants, the time or times of receipt of awards, the types of awards to be granted
and the applicable terms, conditions, performance targets, restrictions and other provisions of such awards, to cancel or suspend
awards, and to accelerate the exercisability or vesting of any award under circumstances designated by it. The Committee may delegate
all or any portion of its responsibilities or powers under the Omnibus Plan to persons selected by it. If the Committee does not
exist or for any other reason determined by the Board of Directors, and to the extent not prohibited by applicable law or the
applicable rules of any stock exchange, the Board of Directors may take any action under the Omnibus Plan that would otherwise
be the responsibility of the Committee.
If the Omnibus Plan is approved by
stockholders, the maximum number of shares that may be delivered to Participants and their beneficiaries under the Omnibus
Plan will be 1,000 CHAC Shares. The Omnibus Plan contains an "evergreen" provision, which allows for an automatic
annual increase in the number of CHAC Shares available under the Omnibus Plan on the first day of each fiscal year, in an
amount equal to 4% of the then-outstanding CHAC Shares, provided that the Committee may take action prior to the first day
of the fiscal year to lower the amount of such increase (the “Annual Increase”).
If an award of common stock is settled
in cash, the total number of shares with respect to which such payment is made shall not be considered to have been delivered.
However, (i) if shares covered by an award are used to satisfy the applicable tax withholding obligation, the number of shares
held back by CHAC to satisfy such withholding obligation shall be considered to have been delivered; (ii) if the exercise price
of any option granted under the Omnibus Plan is satisfied by tendering CHAC Shares to us (including CHAC Shares that would otherwise
be distributable upon the exercise of the option), the number of CHAC Shares tendered to satisfy such exercise price shall be
considered to have been delivered; and (iii) if we repurchase CHAC Shares with proceeds received from the exercise of an option
issued under the Omnibus Plan, the total number of shares repurchased shall be deemed delivered.
Notwithstanding the minimum vesting
limitations described below with respect to options and full value awards, the Committee may grant a options and full value awards
that are not subject to such minimum vesting provisions. The total aggregate number of CHAC Shares subject to options and full
value awards granted pursuant to the Omnibus Plan that are not subject to such minimum vesting limitations may not exceed five
percent of the limit of the total number of CHAC Shares that may be delivered under the Omnibus Plan.
If the Omnibus Plan is approved by stockholders,
the following additional limits apply to awards under the Omnibus Plan:
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the
maximum number of CHAC Shares that may be delivered to Participants with respect to incentive stock options shall be 1,000 CHAC
Shares, subject to the Annual Increase;
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●
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the maximum annual total compensation, including the value of
any Awards made pursuant to this Plan (determined as of the date of grant) that may be paid or granted to a Participant who
is a member of the Board of Directors but who is not an employee during any one- year period for service on the Board of Directors
shall be $500,000 dollars; provided that such limit shall be $750,000 during the first year of service for a member of the
Board of Directors who is not an employee;
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The CHAC Shares with respect to which
awards may be made under the Omnibus Plan shall be:
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shares
currently authorized but unissued;
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to
the extent permitted by applicable law, currently held or acquired by CHAC as treasury shares, including shares purchased in the
open market or in private transactions; or
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shares
purchased in the open market by a direct or indirect wholly-owned subsidiary of CHAC, and we may contribute to the subsidiary
an amount sufficient to accomplish the purchase of the shares to be so acquired.
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At the discretion of the Committee,
an award under the Omnibus Plan may be settled in cash, CHAC Shares, the granting of replacement awards, or a combination thereof;
provided, however, that if a cash incentive award is settled in CHAC Shares, it must satisfy the minimum vesting requirements
related to full value awards.
The Committee may use CHAC Shares available
under the Omnibus Plan as the form of payment for compensation, grants or rights earned or due under any other compensation plans
or arrangements of our company or a subsidiary, including the plans and arrangements of our company or a subsidiary assumed in
business combinations.
In the event of a corporate transaction
involving CHAC (including, without limitation, any share dividend, share split, extraordinary cash dividend, recapitalization,
reorganization, merger, amalgamation, consolidation, share exchange, split-up, spin-off, sale of assets or subsidiaries, combination
or exchange of shares), the Committee shall adjust outstanding awards to preserve the benefits or potential benefits of the awards.
Action by the Committee may include:
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adjustment
of the number and kind of shares which may be delivered under the Omnibus Plan;
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adjustment
of the number and kind of shares subject to outstanding awards;
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●
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adjustment
of the exercise price of outstanding options; and
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any
other adjustments that the Committee determines to be equitable, which may include, without limitation:
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o
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replacement of awards with other awards which the Committee
determines have comparable value and which are based on stock of a company resulting from the transaction; and
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o
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cancellation of the award in return for cash payment of
the current value of the award, determined as though the award is fully vested at the
time of payment, provided that in the case of an option, the amount of such payment will
be the excess of value of the CHAC Shares subject to the option at the time of the transaction
over the exercise price.
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Except as otherwise provided by the
Committee, awards under the Omnibus Plan are not transferable except as designated by the Participant by will or by the laws of
descent and distribution.
Eligibility
All employees and directors of, and
consultants and other persons providing services to, CHAC or any of its subsidiaries (or any parent or other related company,
as determined by the Committee) are eligible to become Participants in the Omnibus Plan, except that non-employees may not be
granted incentive stock options.
Options
The Committee may grant an incentive
stock option or non-qualified stock option to purchase CHAC Shares at an exercise price determined by the Committee. Each option
shall be designated as an incentive stock option, a tax-qualified option or non-qualified stock option when granted. An incentive
stock option is a stock option intended to satisfy additional requirements required by federal tax rules in the United States
as specified in the Omnibus Plan (and any incentive stock option granted that does not satisfy such requirements shall be treated
as a non-qualified stock option).
Except as described below, the exercise
price for an option shall not be less than the fair market value of a CHAC Share at the time the option is granted; provided,
that the exercise price of an incentive stock option granted to any employee who owns more than 10 percent of the voting power
of all classes of stock in our company or a subsidiary shall not be less than 110 percent of the fair market value of a CHAC Share
at the time of grant. The exercise price of an option may not be decreased after the date of grant nor may an option be surrendered
to CHAC as consideration for the grant of a replacement option with a lower exercise price, except as approved by our stockholders
or as adjusted for corporate transactions described above.
No option shall be surrendered to CHAC
in consideration for a cash payment or grant of any other award if at the time of such surrender the exercise price of such option
is greater than the then current fair market value of a share of Common Stock, except as approved by our stockholders. In addition,
the Committee may grant options with an exercise price less than the fair market value of the CHAC Shares at the time of grant
in replacement for awards under other plans assumed in connection with business combinations if the Committee determines that
doing so is appropriate to preserve the benefit of the awards being replaced. No dividend equivalents may be granted under the
Omnibus Plan with respect to any option.
The option shall be exercisable in accordance
with the terms established by the Committee, but in no event shall an option become exercisable or vested prior to the earlier
of (i) the first anniversary of the date of grant or (ii) the date on which the Participant’s termination occurs by reason
of death or disability. In the event of the Participant’s termination occurs for any reason other than death, disability,
retirement, or involuntary termination without cause, any unvested options will be forfeited. In the event the Participant’s
termination occurs due to death, disability, retirement or involuntary termination without cause, any unvested options shall be
exercisable only as determined by the Committee in its sole discretion.
The full purchase price of each CHAC
Share purchased upon the exercise of any option shall be paid at the time of exercise of an option. Except as otherwise determined
by the Committee, the purchase price of an option shall be payable in cash, by promissory note, or by CHAC Shares (valued at fair
market value as of the day of exercise), including shares of stock otherwise distributable on the exercise of the option, or a
combination thereof. If the shares remain publicly traded, the Committee may permit a Participant to pay the exercise price by
irrevocably authorizing a third party to sell CHAC Shares (or a sufficient portion of the CHAC Shares) acquired upon exercise
of the option and remit to CHAC a sufficient portion of the sale proceeds to pay the entire exercise price and any tax withholding
resulting from such exercise. The Committee, in its discretion, may impose such conditions, restrictions, and contingencies on
CHAC Shares acquired pursuant to the exercise of an option as the Committee determines to be desirable. In no event will an option
expire more than ten years after the grant date; provided, that an incentive stock option granted to any employee who owns more
than 10 percent of the voting power of all classes of stock in CHAC or a subsidiary shall not be more than 5 years.
The option will expire on the earliest
to occur of (i) the last day of the term of the option as described in the award agreement; (ii) if the Participant’s termination
occurs by reason of death, disability, retirement or an involuntary termination without cause, the one-year anniversary of such
termination date; or (iii) if the Participant’s termination occurs for any reason other than those listed in clause (ii),
the Participant’s termination date.
Full Value Awards
The following types of “full value awards” may
be granted, as determined by the Committee:
|
●
|
the
Committee may grant awards in return for previously performed services or in return for the Participant surrendering other compensation
that may be due;
|
|
●
|
the
Committee may grant awards that are contingent on the achievement of performance or other objectives during a specified period;
and
|
|
●
|
the
Committee may grant awards subject to a risk of forfeiture or other restrictions that lapse upon the achievement of one or more
goals relating to completion of service by the Participant, or achievement of performance or other objectives.
|
Any such awards shall be subject to
such conditions, restrictions and contingencies as the Committee determines. If the right to become vested in a full value award
is conditioned on the completion of a specified period of service with CHAC or its subsidiaries, without achievement of performance
targets or other performance objectives being required as a condition of vesting, and without it being granted in lieu of other
compensation, then the required period of service shall not end prior to the first anniversary of the date of grant. If the
right to become vested in a full value award is conditioned on the achievement of performance targets or performance objectives,
and without it being granted in lieu of other compensation, then the required performance period shall not end prior to the first
anniversary of the date of grant. In the event the Participant’s termination occurs due to death, disability or involuntary
termination without cause, any unvested full value awards shall become vested only as determined by the Committee in its sole
discretion.
Dividends or dividend equivalents settled
in cash or CHAC Shares may be granted to a Participant in relation to a full value award with payments made either currently or
credited to an account. No dividend or dividend equivalents granted in relation to a full value award that is subject to vesting
shall be settled prior to the date such full value award (or applicable portion thereof) becomes vested and is settled.
Change in Control
A Change in Control shall have such
effect on an award as is provided in the applicable award agreement, or, to the extent not prohibited by the Omnibus Plan or the
applicable award agreement, as provided by the Committee. In the event of a Change in Control, the Committee may cancel any outstanding
awards in return for cash payment of the current value of the award, determined with the award fully vested at the time of payment,
provided that in the case of an option, the amount of such payment will be the excess of value of the CHAC Shares subject to the
option at the time of the transaction over the exercise price (and the option will be cancelled with no payment if the value of
the shares at the time of the transaction are equal to or less than the exercise price).
For the purposes of the Omnibus Plan,
a “change in control” is generally deemed to occur when:
|
●
|
any
person becomes the beneficial owner of 50 percent or more of CHAC’s voting stock;
|
|
●
|
the
consummation of a reorganization, merger, consolidation, acquisition, share exchange or other corporate transaction involving
our company where, immediately after the transaction, the CHAC stockholders immediately prior to the combination hold, directly
or indirectly, 50 percent or less of the voting stock of the combined company;
|
|
●
|
the
consummation of any plan of liquidation or dissolution providing for the distribution of all or substantially all of the assets
of CHAC and its subsidiaries or the consummation of a sale of substantially all of the assets of CHAC and its subsidiaries; or
|
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●
|
at
any time during any period of two consecutive years, individuals who at the beginning of such period were members of the Board
of Directors, who we refer to as Incumbent Directors, cease for any reason to constitute at least a majority thereof (unless the
election, or the nomination for election by CHAC’s stockholders, of each new director was approved by a vote of at least
two-thirds of the Incumbent Directors.
|
Amendment and Termination
The Board of Directors may amend or
terminate the Omnibus Plan at any time, and the Board of Directors or the Committee may amend any award granted under the Omnibus
Plan, but no amendment or termination may adversely affect the rights of any Participant without the Participant’s written
consent. The Board of Directors may not amend the provision of the Omnibus Plan related to re-pricing without approval of stockholders
or make any material amendments to the Omnibus Plan without stockholder approval. The Omnibus Plan will remain in effect as long
as any awards under the Omnibus Plan remain outstanding, but no new awards may be granted after the tenth anniversary of the date
on which the stockholders approve the Omnibus Plan.
United States Income Tax Considerations
The following is a brief description
of the U.S. federal income tax treatment that will generally apply to awards under the Omnibus Plan based on current U.S. income
taxation with respect to Participants who are subject to U.S. income tax. Participants subject to taxation in other countries
should consult their tax advisor (including Participants in Israel).
Non-Qualified Options. The grant
of a non-qualified option will not result in taxable income to the Participant. Except as described below, the Participant will
realize ordinary income at the time of exercise in an amount equal to the excess of the fair market value of the CHAC Shares acquired
over the exercise price for those shares. Gains or losses realized by the Participant upon disposition of such shares will be
treated as capital gains and losses, with the basis in such CHAC Shares equal to the fair market value of the shares at the time
of exercise.
Incentive Stock Options. The
grant of an incentive stock option will not result in taxable income to the Participant. The exercise of an incentive stock option
will not result in taxable income to the Participant provided that the Participant was, without a break in service, an employee
of CHAC or a subsidiary during the period beginning on the date of the grant of the option and ending on the date three months
prior to the date of exercise (one year prior to the date of exercise if the Participant is “disabled,” as that term
is defined in the Internal Revenue Code).
The excess of the fair market value
of the CHAC Shares at the time of the exercise of an incentive stock option over the exercise price is an adjustment that is included
in the calculation of the Participant’s alternative minimum taxable income for the tax year in which the incentive stock
option is exercised. For purposes of determining the Participant’s alternative minimum tax liability for the year of disposition
of the shares acquired pursuant to the incentive stock option exercise, the Participant will have a basis in those shares equal
to the fair market value of the CHAC Shares at the time of exercise.
If the Participant does not sell or
otherwise dispose of the CHAC Shares within two years from the date of the grant of the incentive stock option or within one year
after the transfer of such CHAC Shares to the Participant, then, upon disposition of such CHAC Shares, any amount realized in
excess of the exercise price will be taxed to the Participant as capital gain. A capital loss will be recognized to the extent
that the amount realized is less than the exercise price.
If the above holding period requirements
are not met, the Participant will generally realize ordinary income at the time of the disposition of the shares, in an amount
equal to the lesser of (i) the excess of the fair market value of the CHAC Shares on the date of exercise over the exercise price,
or (ii) the excess, if any, of the amount realized upon disposition of the shares over the exercise price. If the amount realized
exceeds the value of the shares on the date of exercise, any additional amount will be capital gain. If the amount realized is
less than the exercise price, the Participant will recognize no income, and a capital loss will be recognized equal to the excess
of the exercise price over the amount realized upon the disposition of the shares.
Full Value Awards. A Participant
who has been granted a full value award will not realize taxable income at the time of grant, provided that the CHAC Shares subject
to the award are not delivered at the time of grant, or if the CHAC Shares are delivered, it is subject to restrictions that constitute
a “substantial risk of forfeiture” for U.S. income tax purposes. Upon the later of delivery or vesting of CHAC Shares
subject to an award, the holder will realize ordinary income in an amount equal to the then fair market value of those shares.
Gains or losses realized by the Participant upon disposition of such shares will be treated as capital gains and losses, with
the basis in such shares equal to the fair market value of the shares at the time of delivery or vesting. Dividends paid to the
holder during the restriction period, if so provided, will also be compensation income to the Participant.
Withholding of Taxes. CHAC may
withhold amounts from Participants to satisfy withholding tax requirements. Except as otherwise provided by the Committee, Participants
may satisfy withholding requirements through cash payment, by having CHAC Shares withheld from awards or by tendering previously
owned CHAC Shares to CHAC to satisfy tax withholding requirements. The CHAC Shares withheld from awards may be used to satisfy
not more than the maximum individual tax rate for the Participant in the applicable jurisdiction for such Participant (based on
the applicable rates of the relevant tax authorities, including the Participant’s share of payroll or similar taxes, as
provided in tax law, regulations, or the authority’s administrative practices, not to exceed the highest statutory rate
in that jurisdiction, even if that rate exceeds the highest rate that may be applicable to the specific Participant).
Change In Control. Any acceleration
of the vesting or payment of awards under the Omnibus Plan in the event of a change in control in CHAC may cause part or all of
the consideration involved to be treated as an “excess parachute payment” under the Internal Revenue Code, which may
subject the Participant to a 20 percent excise tax and preclude deduction by a subsidiary.
ERISA. The Omnibus Plan is not
subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended and is not intended to be qualified
under Section 401 of the Internal Revenue Code.
Tax Advice
The preceding discussion is based on
U.S. tax laws and regulations presently in effect, which are subject to change, and the discussion does not purport to be a complete
description of the U.S. income tax aspects of the Omnibus Plan. A Participant may also be subject to state and local taxes in
connection with the grant of awards under the Omnibus Plan. In addition, a number of Participants reside outside the U.S. and
are subject to taxation in other countries. The actual tax implications for any Participant will depend on the legislation in
the relevant tax jurisdiction for that Participant and their personal circumstances.
What Happens If Stockholders Do Not Approve This Proposal?
In the event this proposal is not approved
by stockholders, CHAC will not have the ability to grant equity compensation as a component of our executive, employee and director
compensation programs.
Required Vote
Approval of the Equity Plan Adoption
Proposal requires the affirmative vote of the holders of a majority of CHAC Shares represented in person or by proxy at the special
meeting of CHAC stockholders and entitled to vote thereon.
New Plan Benefits
Because benefits under the Omnibus Plan
will depend on the Committee’s actions and the fair market value of CHAC Shares on future dates, it is not possible to determine
the benefits that will be received by directors, executive officers and other employees if the Omnibus Plan is approved by CHAC
stockholders.
Board of Directors’ Recommendation
The Board of Directors recommends a
vote “FOR” adoption of the Equity Plan Adoption Proposal.
THE
NYSE PROPOSAL
Background
and Overview
Under
the terms of the Merger Agreement, CHAC is required to issue more than 20% of its issued and outstanding common stock to the shareholders
of BiomX in a private placement transaction. Because of the issuance of in excess of 20% of the outstanding common stock of CHAC,
we are required to obtain stockholder approval in order to comply with NYSE American Listed Company Guide Sections 712 and 713.
Under
NYSE American Listed Company Guide Section 712, stockholder approval is required prior to the issuance of securities as sole or
partial consideration for an acquisition of the stock or assets of another company where the present or potential issuance of
common stock, or securities convertible into common stock, could result in an increase in outstanding common shares of 20% or
more.
Under
NYSE American Listed Company Guide Section 713, stockholder approval is required prior to the issuance of securities if such securities
are not issued in a public offering and (a) the sale, issuance, or potential issuance by the issuer of common stock (or securities
convertible into common stock) is equal to 20% or more of presently outstanding stock for less than market value of the stock,
and (b) the issuance or potential issuance of additional shares will result in a change of control of the issuer, including, but
not limited to, those issuances that constitute a reverse merger.
Effect
of Proposal on Current Stockholders
If
the NYSE Proposal is adopted, CHAC would issue shares representing more than 20% of its outstanding common stock in connection
with the Business Combination. The issuance of such shares would result in significant dilution to the CHAC stockholders and would
afford such stockholders a smaller percentage interest in the voting power, liquidation value and aggregate book value of CHAC.
If
the NYSE Proposal is not approved and we consummate the Business Combination on its current terms, CHAC would be in violation
of NYSE American Listed Company Guide Sections 712 and 713, which could result in the delisting of our securities from the NYSE
American Stock Exchange. If the NYSE American Stock Exchange delists our securities from trading on its exchange, we could face
significant material adverse consequences, including:
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●
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a
limited availability of market quotations for our securities;
|
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●
|
reduced
liquidity with respect to our securities;
|
|
●
|
a
determination that our shares are a “penny stock,” which will require brokers trading in our securities to adhere
to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our
securities;
|
|
●
|
a
limited amount of news and research analyst coverage for the post-transaction company; and
|
|
●
|
a
decreased ability to issue additional securities or obtain additional financing in the future.
|
It
is a condition to the obligations of the Merger Sub and BiomX to close the Business Combination that CHAC’s common stock
remain listed on the NYSE American Stock Exchange. As a result, if the NYSE Proposal is not adopted, the Business Combination
may not be completed.
Required
Vote
Approval
of the NYSE Proposal requires the affirmative vote of the holders of a majority of CHAC Shares represented in person or by proxy
at the special meeting of CHAC stockholders and entitled to vote thereon.
Board
of Directors’ Recommendation
The
Board of Directors recommends a vote “FOR” adoption of the NYSE Proposal.
THE
BUSINESS COMBINATION ADJOURNMENT PROPOSAL
Purpose
of the Business Combination Adjournment Proposal
In
the event there are not sufficient votes for, or otherwise in connection with, the adoption of the Merger Agreement and the transactions
contemplated thereby, the CHAC Board of Directors may adjourn the special meeting to a later date, or dates, if necessary, to
permit further solicitation of proxies. In no event will CHAC seek adjournment which would result in soliciting of proxies, having
a stockholder vote, or otherwise consummating a business combination after the date that is 24 months from the closing of the
Initial Public Offering, or December 18, 2020.
Required
Vote
Approval
of the Business Combination Adjournment Proposal requires the affirmative vote of the holders of a majority of the CHAC Shares
as of the record date represented in person or by proxy at the special meeting of CHAC stockholders and entitled to vote thereon.
Adoption of the Business Combination Adjournment Proposal is not conditioned upon the adoption of any of the other proposals.
Board
of Directors’ Recommendation
The
Board of Directors recommends a vote “FOR” adoption of the Business Combination Adjournment Proposal.
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA OF BIOMX LTD.
The
following tables set forth selected historical financial information derived from BiomX’s audited consolidated financial
statements as of December 31, 2018 and 2017 and for the three years in the period ended December 31, 2018, which are included
elsewhere in this proxy statement. The data below as of June 30, 2019 and 2018 and for the six months ended June
30, 2019 and 2018, has been derived from BiomX’s unaudited consolidated financial statements for such periods, which are
included in this proxy statement. BiomX has prepared the unaudited consolidated financial statements on the same basis as the
audited consolidated financial statements and has included, in its opinion, all adjustments, consisting only of normal recurring
adjustments considered necessary for a fair presentation of the financial information set forth in those statements. Historical
results are not necessarily indicative of the results to be expected for future periods.
The information is only a
summary and should be read in conjunction with BiomX’s consolidated financial statements and related notes, and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations of BiomX Ltd.” contained elsewhere herein.
The historical results included below and elsewhere in this proxy statement are not indicative of the future performance of BiomX.
|
|
Three
months
ended
June
30,
|
|
|
Six
months
ended
June
30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
USD In thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development (“R&D”) expenses, net
|
|
|
2,864
|
|
|
|
1,655
|
|
|
|
5,600
|
|
|
|
3,643
|
|
Operating Loss
|
|
|
4,067
|
|
|
|
2,443
|
|
|
|
7,
790
|
|
|
|
5,078
|
|
Net Loss
|
|
|
3,778
|
|
|
|
2,672
|
|
|
|
7,003
|
|
|
|
5,378
|
|
|
|
Year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
USD In thousands
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses, net
|
|
|
9,135
|
|
|
|
4,176
|
|
|
|
1,149
|
|
Operating Loss
|
|
|
12,495
|
|
|
|
6,712
|
|
|
|
1,769
|
|
Net Loss
|
|
|
12,720
|
|
|
|
6,433
|
|
|
|
1,900
|
|
Consolidated Balance Sheet Data,
USD In thousands:
|
|
As of June 30,
|
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
USD In thousands
|
|
Cash and cash equivalents
|
|
|
16,145
|
|
|
|
8,604
|
|
|
|
6,898
|
|
Total assets
|
|
|
41,730
|
|
|
|
45,331
|
|
|
|
13,990
|
|
Total current liabilities
|
|
|
2,204
|
|
|
|
1,639
|
|
|
|
1,459
|
|
Total non-current liabilities
|
|
|
1,295
|
|
|
|
889
|
|
|
|
1,001
|
|
Total liabilities
|
|
|
3,499
|
|
|
|
2,528
|
|
|
|
2,460
|
|
Total Shareholders’ equity
|
|
|
38,231
|
|
|
|
42,803
|
|
|
|
11,530
|
|
COMPARATIVE
SHARE INFORMATION
The following table sets
forth the historical comparative share information for BiomX and CHAC on a stand-alone basis and the unaudited pro forma combined
per share information after giving effect to the Business Combination, (1) assuming no CHAC stockholders exercise redemption rights
with respect to their common stock upon the consummation of the Business Combination; and (2) assuming that CHAC stockholders
exercise their redemption rights with respect to a maximum of 2,062,157 shares of common stock upon consummation of the Business
Combination.
The
historical information should be read in conjunction with the information in the sections entitled “Selected Historical
Financial Information of CHAC” and “Selected Historical Consolidated Financial and Other Data of BiomX”
and the historical financial statements of CHAC and BiomX incorporated by reference in or included elsewhere in this proxy
statement. The unaudited pro forma condensed combined per share information is derived from, and should be read in conjunction
with, the information contained in the section of this proxy statement entitled “Unaudited Pro Forma Combined Financial
Information.”
The
unaudited pro forma combined share information below does not purport to represent what the actual results of operations or the
earnings per share would been had the companies been combined during the periods presented, nor to project the Company’s
results of operations or earnings per share for any future date or period. The unaudited pro forma combined stockholders’
equity per share information below does not purport to represent what the value of CHAC and BiomX would have been had the companies
been combined during the periods presented.
(in
thousands, except share and per share data)
|
|
BiomX
|
|
|
CHAC
|
|
|
Pro
Forma
Combined
Assuming
No
Redemptions
into
Cash
|
|
|
Pro
Forma
Combined
Assuming
Maximum
Redemptions
into
Cash
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(7,003
|
)
|
|
$
|
337
|
|
|
$
|
(6,908
|
)
|
|
$
|
(6,908
|
)
|
Stockholders’ equity
|
|
|
38,231
|
|
|
|
5,000
|
|
|
|
107,901
|
|
|
|
87,020
|
|
Weighted average shares outstanding—basic and diluted
|
|
|
|
|
|
|
1,996,149
|
|
|
|
25,375,000
|
|
|
|
22,812,843
|
|
Basic and diluted net loss per share
|
|
|
|
|
|
|
(0.15
|
)
|
|
|
(0.27
|
)
|
|
|
(0.30
|
)
|
Stockholders’ equity per share—basic and
diluted
|
|
|
|
|
|
|
2.50
|
|
|
|
4.25
|
|
|
|
3.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018 (BiomX) and Twelve Months
Ended December 31, 2018 (CHAC)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(12,720
|
)
|
|
$
|
9
|
|
|
$
|
(12,737
|
)
|
|
$
|
(12,737
|
)
|
Weighted average shares outstanding—basic and diluted
|
|
|
|
|
|
|
1,782,502
|
|
|
|
25,375,000
|
|
|
|
22,812,843
|
|
Basic and diluted net loss per share
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
(0.50
|
)
|
|
|
(0.56
|
)
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BIOMX LTD.
You
should read the following discussion and analysis of BiomX’s financial condition and results of operations together with
its consolidated financial statements and the related notes. Some of the information contained in this discussion and analysis
or set forth elsewhere, including information with respect to its plans and strategy for its business and related financing, includes
forward-looking statements that involve risks, uncertainties and assumptions. You should read the “Special Note Regarding
Forward-Looking Statements” and “Risk Factors” for a discussion of important factors that could cause actual
results to differ materially from the results described in or implied by the forward-looking statements contained in the following
discussion and analysis.
Overview
BiomX
is a preclinical stage microbiome product discovery company developing products using both natural and engineered phage technologies
designed to target and destroy bacteria that affect the appearance of skin, as well as harmful bacteria in chronic diseases, such
as inflammatory bowel disease (“IBD”), liver disease and cancer. Bacteriophage or phage are viruses that target bacteria
and are considered inert to mammalian cells. By developing proprietary combinations of naturally occurring phage and by creating
novel phage using synthetic biology, BiomX develops phage-based therapies intended to address large-market and orphan diseases.
Since
inception in 2015, BiomX has devoted substantially all its resources to organizing and staffing its company, raising capital,
acquiring rights to or discovering product candidates, developing its technology platforms, securing related intellectual property
rights, and conducting discovery, research and development activities for its product candidates. It does not have any products
approved for sale, its products are still in the preclinical development stage, and it has not generated any revenue from product
sales. As BiomX moves from its product candidates from preclinical to clinical stage, it expects its expenses to increase. To
date, it has funded its operations with proceeds from sales of common and preferred shares. Through June 30, 2019, BiomX had received
gross proceeds of approximately $60.1 million from sales of its common and preferred shares. In addition, BiomX received
approximately $108 thousand from its collaboration agreements during 2018 and recorded a reduction from research and development
expenses of $95 thousand during the six months ended June 30, 2019.
Since inception,
BiomX has incurred significant operating losses. BiomX’s ability to generate product revenue sufficient to achieve profitability
will depend on the successful development of, the receipt of regulatory approval for, and eventual commercialization of one or
more of BiomX’s product candidates. BiomX’s net losses were approximately $12.7 million, $6.4 million and $1.9 million
for the years ended December 31, 2018, 2017 and 2016, respectively. BiomX’s net losses were approximately $7.0 million
and $5.4 million for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, BiomX had an accumulated
deficit of $28.6 million and expects that for the foreseeable future it will continue to incur significant expenses as BiomX advances
its product candidates from discovery through preclinical development and clinical trials and seeks regulatory approval of its
product candidates. In addition, if BiomX obtains regulatory approval for any of its product candidates, it would expect to incur
significant commercialization expenses related to product manufacturing, marketing, sales and distribution.
BiomX
may also incur expenses in connection with in-licensing or acquiring additional product candidates. In November 2017, BiomX entered
into a share purchase agreement to acquire all of the outstanding share capital of RondinX Ltd., a company organized under the
laws of Israel. BiomX may incur expenses in the future in connection with similar acquisitions.
As
a result, BiomX will need substantial additional funding to support its continuing operations and pursue the clinical development
process. Until such time as it can generate revenue from product sales, if ever, BiomX expects to finance its operations with
proceeds from outside sources, including sales of its securities, milestone payments from collaboration and licensing deals it
may enter into and other outside funding sources. It may be unable to raise additional funds or enter into such other agreements
or arrangements when needed on favorable terms, or at all. If it fails to raise capital or enter into such agreements as, and
when, needed, BiomX may have to significantly delay, scale back or discontinue the clinical development of one or more of its
product candidates.
Because
of the numerous risks and uncertainties associated with product development, BiomX is unable to predict the timing or amount of
increased expenses or when or if it will be able to achieve or maintain profitability. BiomX anticipates that its general and
administrative expenses will increase following the completion of the Business Combination because of the increased costs associated
with being a public company, including significant legal, accounting, investor relations and other expenses that it did not incur
as a private company. Even if it is able to generate product sales, it may not become profitable. If it fails to become profitable
or is unable to sustain profitability on a continuing basis, BiomX may be unable to continue its operations at planned levels
and be forced to reduce or terminate its operations.
At June
30, 2019, it had cash and cash equivalents and short-term deposits of $34.9 million. BiomX believes that its existing cash
and cash equivalents and short-term deposits, together with those from CHAC, will enable it to fund its operating expenses and
capital expenditure requirements for at least the next 24 months, as discussed further below under “—Liquidity
and Capital Resources.”
Components
of BiomX’s Consolidated Results of Operations
Revenue
To
date, BiomX has not generated any revenue from product sales and does not expect to generate any revenue from product sales in
the near future. If development efforts for BiomX’s product candidates are successful and result in any necessary regulatory
approvals or otherwise lead to any commercialized products or additional license agreements with third parties, it may generate
revenue in the future from product sales.
Operating
Expenses
Research
and Development Expenses, net
Research
and development expenses consist primarily of costs incurred in connection with the discovery and development of BiomX’s
product candidates. It expenses research and development costs as incurred, offset by IIA grants. These expenses include:
|
●
|
license
maintenance fees and milestone fees incurred in connection with various license agreements;
|
|
●
|
expenses
incurred under agreements with CROs, CMOs, as well as investigative sites and consultants
that conduct BiomX’s clinical trials, preclinical studies and other scientific
development services;
|
|
●
|
manufacturing
scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical
trial materials;
|
|
●
|
employee-related
expenses, including salaries, related benefits, travel and share-based compensation expenses
for employees engaged in research and development functions, as well as external costs,
such as fees paid to outside consultants engaged in such activities;
|
|
●
|
costs
related to compliance with regulatory requirements; and
|
|
●
|
depreciation
and other expenses.
|
BiomX
recognizes external development costs based on an evaluation of the progress to completion of specific tasks using information
provided to it by its service providers.
BiomX
does not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific programs because
these costs are deployed across multiple programs and, as such, are not separately classified. It uses internal resources primarily
to oversee the research and discovery as well as for managing BiomX’s preclinical development, process development, manufacturing
and clinical development activities. These employees work across multiple programs and, therefore, it does not track their costs
by program.
The
table below summarizes BiomX’s research and development expenses incurred by program:
|
|
Six Months Ended
June 30,
|
|
|
Year Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
BX001
|
|
$
|
741
|
|
|
$
|
674
|
|
|
$
|
1,708
|
|
|
$
|
821
|
|
|
$
|
745
|
|
BX002
|
|
|
661
|
|
|
|
707
|
|
|
|
1,430
|
|
|
|
480
|
|
|
|
-
|
|
BX003
|
|
|
847
|
|
|
|
49
|
|
|
|
436
|
|
|
|
-
|
|
|
|
-
|
|
Colorectal cancer
|
|
|
223
|
|
|
|
27
|
|
|
|
175
|
|
|
|
17
|
|
|
|
-
|
|
Salaries and related benefits
|
|
|
2,603
|
|
|
|
1,87
2
|
|
|
|
4,595
|
|
|
|
2,817
|
|
|
|
675
|
|
Depreciation
|
|
|
205
|
|
|
|
99
|
|
|
|
210
|
|
|
|
95
|
|
|
|
27
|
|
Infrastructure & other unallocated R&D expenses
|
|
|
714
|
|
|
|
861
|
|
|
|
1,227
|
|
|
|
606
|
|
|
|
4
|
|
Less grants from the
IIA & Income from collaborations
|
|
|
(394
|
)
|
|
|
(646
|
)
|
|
|
(646
|
)
|
|
|
(660
|
)
|
|
|
(302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development expenses
|
|
$
|
5,600
|
|
|
$
|
3,643
|
|
|
$
|
9,135
|
|
|
$
|
4,176
|
|
|
$
|
1,149
|
|
Research
and development activities are central to BiomX’s business. Product candidates in later stages of clinical development generally
have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration
of later-stage clinical trials. As a result, BiomX expects that its research and development expenses will increase substantially
over the next several years, particularly as it increases personnel costs, including share-based compensation, contractor costs
and facilities costs, as it continues to advance the development of its product candidates. BiomX also expects to incur additional
expenses related to milestone and royalty payments payable to third parties with whom it has entered into license agreements to
acquire the rights to its product candidates.
General
and Administrative Expenses
General
and administrative expenses consist primarily of salaries, related benefits, travel and share-based compensation expenses for
personnel in executive, finance and administrative functions. General and administrative expenses also include professional fees
for legal, consulting, accounting and audit services.
BiomX
anticipates that its general and administrative expenses will increase in the future as BiomX increases its headcount to support
its continued research activities and development of its product candidates. It also anticipates that it will incur increased
accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor and public relations
expenses associated with being a public company. BiomX anticipates the additional costs for these services will substantially
increase its general and administrative expenses. Additionally, if and when it believes a regulatory approval of a product candidate
appears likely, BiomX anticipates an increase in payroll and expenses as a result of BiomX’s preparation for commercial
operations, especially as it relates to the sales and marketing of BiomX’s product candidate.
Financial
expenses, net
Financial
expenses, net consist primarily of income or expenses related to revaluation of foreign currencies and interest income on BiomX’s
bank deposits.
Consolidated
Results of Operations
Comparison of the six-month periods ended June 30,
2019 and 2018:
The following table summarizes BiomX’s
consolidated results of operations for the six months ended June 30, 2019 and 2018:
|
|
Six months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
In thousands
|
|
|
|
|
|
|
|
|
Research and development expenses, net
|
|
$
|
5,600
|
|
|
$
|
3,643
|
|
General and administrative expenses
|
|
|
2,190
|
|
|
|
1,435
|
|
Operating Loss
|
|
|
7,
790
|
|
|
|
5,078
|
|
|
|
|
|
|
|
|
|
|
Financial expenses (income), net
|
|
|
(787
|
)
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
Loss for the Year
|
|
$
|
7,003
|
|
|
$
|
5,378
|
|
Research and Development Expenses, net
Research and development
expenses, net, were $5.6 million for the six months ended June 30, 2019, compared to $3.6 million for the six months
ended June 30, 2018. The increase of $2.0 million, or 53.7%, in the six months ended June 30, 2019, compared to the prior
period is primarily due to significant expansion of BiomX’s BX003 and colorectal cancer programs as well as an increase
of $0.7 million in salaries and related expenses, as a result of BiomX increasing research and development headcount significantly
in 2019.
General and Administrative Expenses
General and administrative
expenses were $2.2 million for the six months ended June 30, 2019, compared to $1.4 million for the six months ended June 30,
2018. The increase of $0.8 million, or 52.6%, in the six months ended June 30, 2019, compared to the prior period primarily reflected
an increase of $0.2 million in personnel-related costs, due to the hiring of additional personnel in BiomX’s general and
administrative and operations functions as well as an increase of $0.2 million in share based payments and $0.3 million of transaction
expenses.
Comparison of the Years Ended December 31, 2018
and 2017
The following table summarizes BiomX’s
consolidated results of operations for the years ended December 31, 2018 and 2017:
|
|
Year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
In thousands
|
|
|
|
|
|
|
|
|
Research and development expenses, net
|
|
$
|
9,135
|
|
|
$
|
4,176
|
|
General and administrative expenses
|
|
|
3,360
|
|
|
|
2,536
|
|
Operating Loss
|
|
|
12,495
|
|
|
|
6,712
|
|
|
|
|
|
|
|
|
|
|
Revaluation of convertible security
|
|
|
-
|
|
|
|
-
|
|
Financial expenses, net
|
|
|
225
|
|
|
|
(279
|
)
|
|
|
|
|
|
|
|
|
|
Loss for the Year
|
|
$
|
12,720
|
|
|
$
|
6,433
|
|
Research
and Development Expenses, net
Research
and development expenses were $9.1 million for the year ended December 31, 2018, compared to $4.2 million for the
year ended December 31, 2017. The increase of $4.9 million, or 119%, in the year ended December 31, 2018, compared
to the prior year is primarily due to significant expansion of BiomX’s BX002 and BX001 programs in 2018, and launch of its
BX003 and colorectal cancer programs, as well as an increase of $2.1 million in salaries and related expenses, as a result of
BiomX increasing research and development headcount significantly in 2018.
General
and Administrative Expenses
General
and administrative expenses were $3.4 million for the year ended December 31, 2018, compared to $2.5 million for
the year ended December 31, 2017. The increase of $0.9 million, or 32.5%, primarily reflected an increase of $0.5 million
in personnel-related costs and an increase of $0.1 million in facilities related costs. These increases were mainly due to
the hiring of additional personnel in BiomX’s general and administrative, operations and business development functions.
Comparison
of the Years Ended December 31, 2017 and 2016
The
following table summarizes BiomX’s consolidated results of operations for the years ended December 31, 2017 and 2016:
|
|
Year ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
In thousands
|
|
|
|
|
|
|
|
|
Research and development expenses, net
|
|
$
|
4,176
|
|
|
$
|
1,149
|
|
General and administrative expenses
|
|
|
2,536
|
|
|
|
620
|
|
Operating Loss
|
|
|
6,712
|
|
|
|
1,769
|
|
|
|
|
|
|
|
|
|
|
Revaluation of convertible security
|
|
|
-
|
|
|
|
133
|
|
Financial expenses, net
|
|
|
(279
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Loss for the Year
|
|
$
|
6,433
|
|
|
$
|
1,900
|
|
Research
and Development Expenses, net
Research
and development expenses were $4.2 million for the year ended December 31, 2017, compared to $1.1 million for the
year ended December 31, 2016. The increase of $3.1 million, or 263%, in the year ended December 31, 2017 compared
to the prior year, is primarily due to launch of BiomX’s BX002 program in 2017, and advancing and expanding its BX001 program,
including manufacturing activities, as well as an increase of $1.4 million in employee–related expenses and an increase
of $0.6 million in other unallocated discovery and platform-related expense.
General
and Administrative Expenses
General
and administrative expenses were $2.5 million for the year ended December 31, 2017, compared to $0.6 million for
the year ended December 31, 2016. The increase of $1.9 million, or 309%, primarily reflected increases of $0.6 million
in personnel related costs, $0.2 million for non-cash share-based payments, $0.2 million in facilities related costs, $0.2
million for recruitment expenses and $0.3 million in professional fees. These increases were due to the hiring of additional
personnel in BiomX’s general and administrative, operation and business development functions, as well as the lease of office
and lab space.
Liquidity
and Capital Resources
Since inception,
BiomX has not generated any revenue and has incurred significant operating losses and negative cash flows from its operations.
BiomX has funded its operations to date primarily with proceeds from the sale of its common and preferred shares. Through June
30, 2019, BiomX had received gross cash proceeds of approximately $60.1 million from sales of its common and preferred shares.
In addition, BiomX received approximately $108 thousand from its collaboration agreements in 2018, and recorded a reduction from
research and development expenses of $95 thousand during the six-month period ended June 30, 2019.
Cash
in excess of immediate requirements is invested primarily with a view to liquidity and capital preservation.
Cash
Flows
The
following table summarizes BiomX’s cash flows for each of the periods presented:
|
|
Six Months Ended
June
30,
|
|
|
Year
Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Net cash used in operating activities
|
|
$
|
(5,928
|
)
|
|
$
|
(4,958
|
)
|
|
$
|
(11,304
|
)
|
|
$
|
(4,100
|
)
|
|
$
|
(1,336
|
)
|
Net cash provided by (used in) investing activities
|
|
|
11,672
|
|
|
|
(1,505
|
)
|
|
|
(30,038
|
)
|
|
|
(2,116
|
)
|
|
|
(98
|
)
|
Net cash provided by financing activities
|
|
|
1,800
|
|
|
|
13,000
|
|
|
|
43,042
|
|
|
|
12,953
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
7,544
|
|
|
$
|
6,537
|
|
|
$
|
1,700
|
|
|
$
|
6,737
|
|
|
$
|
(234
|
)
|
Operating
Activities
Net cash used in operating
activities for the six months ended June 30, 2019 included BiomX’s net loss of $7.0 million, net cash provided by changes
in BiomX’s operating assets and liabilities of $0.2 million and non-cash charges of $0.9 million, which included share-based
compensation expenses of $0.6 million and depreciation of $0.2 million. Net changes in BiomX’s operating assets and
liabilities for the six months ended June 30, 2019 consisted primarily of an increase in other account payables of $0.1 million
and an increase of $0.3 million in trade account payables, offset by an increase of $0.1 million in other receivables and a decrease
of $0.1 in related party balances.
Net cash used in
operating activities for the six months ended June 30, 2018 included BiomX’s net loss of $5.4 million, net cash used by
changes in BiomX’s operating assets and liabilities of $0.1 million and non-cash charges of $0.6 million, which included
share-based compensation expenses of $0.5 million and depreciation of $0.1 million. Net changes in BiomX’s operating
assets and liabilities for the six months ended June 30, 2018 consisted primarily of a decrease in other account payables of $0.1
million and a decrease of $0.1 million in trade account payables, offset by an increase of $0.1 million in other receivables.
Net cash used in operating
activities for the year ended December 31, 2018 included BiomX’s net loss of $12.7 million, net cash used by changes
in BiomX’s operating assets and liabilities of $0.4 million and non-cash charges of $1.2 million, which included share-based
compensation expenses of $1.0 million and depreciation of $0.2 million, offset by non-cash revaluation of contingent
liabilities expenses of $0.1 million. Net changes in BiomX’s operating assets and liabilities for the year ended December 31,
2018 consisted primarily of an increase in other account payables of $0.4 million and a decrease of $0.2 million in
other receivables, offset by a decrease of $0.2 million in trade account payables.
Net cash used in operating
activities for the year ended December 31, 2017 included BiomX’s net loss of $6.4 million, net cash used by changes
in BiomX’s operating assets and liabilities of $0.9 million and non-cash charges of $1.4 million, which included
share-based compensation expenses of $1.3 million and depreciation of $0.1 million. Net changes in BiomX’s operating
assets and liabilities for the year ended December 31, 2017 consisted primarily of an increase in other account payables
of $0.8 million, mainly due to increase in payables to employees and related institutions, and an increase in trade account
payables of $0.4 million, mainly due to the increase in BiomX’s activity and expenses, offset by an increase of $0.2 million
in other receivables.
Net
cash used in operating activities for the year ended December 31, 2016 included BiomX’s net loss of $1.9 million,
net cash provided by changes in BiomX’s operating assets and liabilities of $0.2 million and net non-cash charges of
$0.3 million, which included share-based compensation expenses of $0.2 million and a non-cash revaluation of convertible
security income of $0.1 million. Net changes in BiomX’s operating assets and liabilities for the year ended December 31,
2016 consisted primarily of an increase of $0.1 million in other account payables and a decrease of $0.1 million in
other receivables.
Investing
Activities
During the six
months ended June 30, 2019, net cash provided by investing activities was $11.7 million, mainly as a result of a decrease in short-term
deposits of $12.4 million offset by purchases of property and equipment of $0.8 million, which consisted primarily of laboratory
and office equipment.
During the six
months ended June 30, 2018, net cash used by investing activities was $1.5 million, mainly as a result of an investment in short-term
deposits of $1.3 million and purchases of property and equipment of $0.2 million, which consisted primarily of laboratory and
office equipment.
During the year ended December
31, 2018, net cash used by investing activities was $30.0 million, mainly as a result of investment in short-term deposits of
$29.9 million and purchases of property and equipment of $0.1 million, which consisted primarily of laboratory and office equipment.
During the year ended December
31, 2017, net cash used by investing activities was $2.1 million, mainly as a result of investment in short-term deposits of $1.2
million and purchases of property and equipment of $0.9 million, which consisted primarily of laboratory and office equipment
and leasehold improvements.
During the year ended December
31, 2016, net cash used by investing activities was $0.1 million for purchases of property and equipment consisting primarily
of laboratory equipment.
Financing
Activities
During the six months ended
June 30, 2019, net cash provided by financing activities was $1.8 million, consisting of net proceeds from the sale of BiomX’s
Series B preferred shares in January 2019.
During the six
months ended June 30, 2018, net cash provided by financing activities was $13 million, consisting of net proceeds from the sale
of BiomX’s Series A preferred shares in February 2018.
During
the year ended December 31, 2018, net cash provided by financing activities was $43.0 million, consisting of net proceeds
from the sale of BiomX’s Series A preferred shares in February 2018 and the sale of BiomX’s Series B preferred shares
in November and December 2018.
During
the year ended December 31, 2017, net cash provided by financing activities was $12.9 million, consisting of net proceeds
from the sale of BiomX’s Series A preferred shares in February 2017 and December 2017.
During
the year ended December 31, 2016, net cash provided by financing activities was $1.2 million, consisting of issuances
of convertible securities.
Funding
Requirements
BiomX expects its expenses
to increase substantially in connection with its ongoing activities, particularly as it advances the preclinical activities and
clinical trials of its product candidates. In addition, it expects to incur additional costs associated with operating as the
subsidiary of a public company. BiomX’s expenses will also increase as it:
|
●
|
continues
development of its product candidates, including its lead product candidate, BX001;
|
|
●
|
completes
IND-enabling activities and prepares to initiate clinical trials for BiomX’s other product candidates;
|
|
●
|
initiates
additional clinical trials and preclinical studies for BiomX’s product candidates
in its pipeline;
|
|
●
|
seeks
to identify and develop or in-license or acquire additional product candidates and technologies;
|
|
●
|
seeks
regulatory approvals for BiomX’s product candidates that successfully complete
clinical trials, if any;
|
|
●
|
establishes
a sales, marketing and distribution infrastructure to commercialize any product candidates
for which it may obtain regulatory approval;
|
|
●
|
hires
and retains additional personnel, such as clinical, quality control, commercial and scientific
personnel;
|
|
●
|
expands
BiomX’s infrastructure and facilities to accommodate its growing employee base,
including adding equipment and physical infrastructure to support its research and development;
and
|
|
●
|
transitions to operating as a subsidiary of a public company.
|
BiomX believes that its existing
cash and cash equivalents, together with CHAC’s existing resources, will enable it to fund its operating expenses and capital
expenditure requirements for at least the next 24 months. It has based these estimates on assumptions that may prove to be wrong,
and it could utilize BiomX’s available capital resources sooner than it expects. If it receives regulatory approval for
BiomX’s product candidates, it expects to incur significant commercialization expenses related to product manufacturing,
sales, marketing and distribution, depending on where it chooses to commercialize.
Until
such time, if ever, that BiomX can generate product revenue sufficient to achieve profitability, BiomX expects to finance its
cash needs through the sales of its securities, milestone payments and other outside funding sources. Debt financing and preferred
equity financing, if available, may involve agreements that include covenants limiting or restricting its ability to take specific
actions, such as incurring additional debt, making capital expenditures or declaring dividends. If it raises additional funds
through government and other third-party funding, collaboration agreements, strategic alliances, licensing arrangements or marketing
and distribution arrangements, BiomX may have to relinquish valuable rights to its technologies, future revenue streams, research
programs or product candidates or grant licenses on terms that may not be favorable to it. If it is unable to raise additional
funds through equity or debt financings when needed, BiomX may be required to delay, limit, reduce or terminate its product development
or future commercialization efforts or grant rights to develop and market products or product candidates that it would otherwise
prefer to develop and market by itself.
Contractual
Obligations and Commitments
The following table
summarizes BiomX’s contractual obligations as of June 30, 2019 and the effects that such obligations are expected to have
on BiomX’s liquidity and cash flows in future periods:
|
|
Payments Due by Period
|
|
|
|
Total
|
|
|
Less than
1 Year
|
|
|
1 to 3
Years
|
|
|
4 to 5
Years
|
|
|
More than
5 Years
|
|
|
|
(in thousands)
|
|
Operating and related lease commitments
|
|
$
|
781
|
|
|
$
|
257
|
|
|
$
|
513
|
|
|
$
|
11
|
|
|
$
|
-
|
|
License fee commitments
|
|
$
|
3,885
|
|
|
$
|
115
|
|
|
$
|
360
|
|
|
$
|
400
|
|
|
$
|
3,010
|
|
Consultancy fee commitments
|
|
$
|
232
|
|
|
$
|
192
|
|
|
$
|
40
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
4,898
|
|
|
$
|
564
|
|
|
$
|
913
|
|
|
$
|
411
|
|
|
$
|
3,010
|
|
In addition, pursuant to BiomX’s
research and license agreements, it is required to make certain milestone and royalty payments to its licensors and collaborators.
See “BiomX Ltd.’s Business—Material Agreements—License Agreements” and Financial Statements—Note
8—Commitments and Contingent Liabilities for additional details regarding its payment obligations to these licensors.
Pursuant
to the Share Purchase Agreement of RondinX, dated November 19, 2017 (the “RondinX SPA”), BiomX is required to issue
its shares and/or cash, and/or the combination of cash and shares to the former shareholders of RondinX who are party to the RondinX
SPA, upon the occurrence of certain milestones.
BiomX received grants from
the IIA. According to the terms of such grants, it will pay royalties of 3% to 3.5% of future sales up to the accumulated grant
received including annual interest of LIBOR linked to the U.S. Dollar, provided however, that it shall not be obligated to repay
such grants if no sales were generated. As of June 30, 2019, no sales were generated. BiomX may be obligated to pay additional
royalties upon the occurrence of certain events as determined by the IIA that are within the control of BiomX.
Critical
Accounting Policies and Significant Judgments and Estimates
BiomX’s
consolidated financial statements are prepared in accordance with GAAP in the United States. The preparation of BiomX’s
consolidated financial statements and related disclosures requires it to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in BiomX’s
financial statements. BiomX bases its estimates on historical experience, known trends and events and various other factors that
it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. BiomX evaluates its estimates and assumptions
on an ongoing basis. BiomX’s actual results may differ from these estimates under different assumptions or conditions.
While
BiomX’s significant accounting policies are described in more detail in Note 2 to BiomX’s consolidated financial
statements, BiomX believes that the following accounting policies are those most critical to the judgments and estimates used
in the preparation of its consolidated financial statements.
Share-Based
Compensation
BiomX
applies ASC 718-10, “Share-Based Payment,” which requires the measurement and recognition of compensation expenses
for all share-based payment awards made to employees and directors, including employee stock options under BiomX’s stock
plans based on estimated fair values.
ASC 718-10 requires that BiomX estimate
the fair value of equity-based payment awards on the date of grant using an option-pricing model. The fair value of the award
is recognized as an expense over the requisite service periods in BiomX’s statements of comprehensive loss. BiomX recognizes
share-based award forfeitures as they occur, rather than estimate by applying a forfeiture rate.
In June 2018, the
Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-07, “Compensation-Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting”, which simplifies the accounting for
nonemployee share-based payment transactions by aligning the measurement and classification guidance, with certain exceptions,
to that for share-based payment awards to employees. The amendments expand the scope of the accounting standard for share-based
payment awards to include share-based payment awards granted to non-employees in exchange for goods or services used or consumed
in an entity’s own operations and supersedes the guidance related to equity-based payments to non-employees. The Company
adopted these amendments on January 1, 2019.
BiomX
recognizes compensation expenses for the fair value of non-employee awards over the requisite service period of each award.
BiomX
estimates the fair value of stock options granted as equity awards using a Black-Scholes options pricing model. The option-pricing
model requires a number of assumptions, of which the most significant are share price, expected volatility and the expected option
term (the time from the grant date until the options are exercised or expire). BiomX determines the fair value per share of the
underlying stock by taking into consideration its most recent sales of stock as well as additional factors that BiomX deems relevant.
BiomX has historically been a private company and lacks company-specific historical and implied volatility information of its
stock. Expected volatility is estimated based on volatility of similar companies in the biotechnology sector. BiomX has historically
not paid dividends and has no foreseeable plans to issue dividends. The risk-free interest rate is based on the yield from governmental
zero-coupon bonds with an equivalent term. The expected option term is calculated for options granted to employees and directors
using the “simplified” method. Grants to non-employees are based on the contractual term. Changes in the determination
of each of the inputs can affect the fair value of the options granted and the results of operations of BiomX.
The
following table sets forth by grant date the number of shares subject to options granted between November 2015 and the date hereof,
the per share exercise price of the options, the fair value of stock per share on each grant date, and the per share estimated
fair value of the options:
Grant Date
|
|
Number of Shares Subject
to Options Granted
|
|
|
Per Share Exercise Price
of Options
|
|
|
Fair Value of Ordinary
Shares on Grant Date
|
|
|
Per Share Estimated Fair
Value of Options
|
|
November 22, 2015
|
|
|
145,539
|
|
|
|
0.003
|
|
|
|
1.337
|
|
|
|
1.33
|
|
November 22, 2015
|
|
|
34,600
|
|
|
|
1.300
|
|
|
|
1.337
|
|
|
|
0.98
|
|
August 29, 2016
|
|
|
31,300
|
|
|
|
0.003
|
|
|
|
1.337
|
|
|
|
1.33
|
|
August 29, 2016
|
|
|
6,926
|
|
|
|
4.100
|
|
|
|
1.337
|
|
|
|
0.73
|
|
November 13, 2016
|
|
|
69,257
|
|
|
|
1.300
|
|
|
|
1.337
|
|
|
|
0.98
|
|
December 27, 2016
|
|
|
20,777
|
|
|
|
1.337
|
|
|
|
1.300
|
|
|
|
0.98
|
|
March 26, 2017
|
|
|
319,611
|
|
|
|
4.089
|
|
|
|
4.089
|
|
|
|
3.02
|
|
March 26, 2017
|
|
|
46,244
|
|
|
|
0.003
|
|
|
|
4.089
|
|
|
|
4.08
|
|
May 17, 2017
|
|
|
40,165
|
|
|
|
4.089
|
|
|
|
4.089
|
|
|
|
3.02
|
|
June 25, 2017
|
|
|
16,066
|
|
|
|
4.089
|
|
|
|
4.089
|
|
|
|
3.07
|
|
September 18, 2017
|
|
|
26,689
|
|
|
|
4.089
|
|
|
|
4.089
|
|
|
|
3.02
|
|
January 18, 2018
|
|
|
44,984
|
|
|
|
4.089
|
|
|
|
4.089
|
|
|
|
2.94
|
|
May 25, 2018
|
|
|
173,971
|
|
|
|
4.771
|
|
|
|
4.771
|
|
|
|
3.56
|
|
June 27, 2018
|
|
|
52,367
|
|
|
|
4.771
|
|
|
|
4.771
|
|
|
|
3.55
|
|
September 4, 2018
|
|
|
25,891
|
|
|
|
4.771
|
|
|
|
4.771
|
|
|
|
3.56
|
|
December 5, 2018
|
|
|
110,326
|
|
|
|
4.909
|
|
|
|
4.909
|
|
|
|
3.54
|
|
March 29, 2019
|
|
|
215,403
|
|
|
|
4.909
|
|
|
|
4.909
|
|
|
|
3.73
|
|
Business
Combination
BiomX
accounted for the acquisition of RondinX Ltd. using the acquisition method of accounting, which required it to estimate the fair
values of the assets acquired and liabilities assumed. This included acquired in-process research and development and contingent
consideration. Significant changes in assumptions and estimates subsequent to completing the allocation of the purchase price
to the assets and liabilities acquired, as well as differences in actual and estimated results, could impact BiomX’s financial
results. Adjustments to the fair value of contingent consideration are recorded in earnings.
In-process
research and development
In-process
research and development acquired in a business combination were recognized at fair value as of the acquisition date and subsequently
accounted for as indefinite-lived intangible assets until completion or abandonment of the associated R&D efforts.
BiomX
reviews these intangible assets at least annually for impairment, or whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable.
Quantitative
and Qualitative Disclosures about Market Risks
Interest
Rate Risk
As of June 30, 2019, BiomX had cash
and cash equivalents, restricted cash and short term bank deposits of $34.9 million, which consisted of cash, restricted
cash and short term bank deposits.
Foreign
Currency Exchange Risk
BiomX
is exposed to foreign exchange rate risk. BiomX’s headquarters are located in Israel, where the majority of its general
and administrative expenses and research and development costs are incurred in Israeli new shekels. During each of the years ended
December 31, 2018, 2017 and 2016, and each of the six-month periods ended June 30, 2019 and 2018, BiomX recognized foreign
currency transaction income (loss) of $(0.3), $0.3, $0.8, $0.4 and $(0.3) million, respectively. BiomX’s functional currency
is the U.S. Dollar. These foreign currency transaction gains and losses were recorded in financial expenses, net in its consolidated
statements of comprehensive loss. BiomX believes that a 10% change in the exchange rate between the U.S. Dollar and Israeli new
shekel would not have a material impact on its financial position or results of operations.
As
BiomX continues to grow its business, its results of operations and cash flows will be subject to fluctuations due to changes
in foreign currency exchange rates, which could adversely impact BiomX’s results of operations. To date, it has not entered
into any foreign currency hedging contracts to mitigate BiomX’s exposure to foreign currency exchange risk.
Emerging
Growth Company Status
BiomX
is, and the post-combination company will be, an “emerging growth company,” as defined in the Jumpstart Our Business
Startups Act of 2012, or the JOBS Act, and it may take advantage of certain exemptions from various reporting requirements that
are applicable to other public companies that are not emerging growth companies. BiomX may take advantage of these exemptions
until it is no longer an emerging growth company. Section 107 of the JOBS Act provides that an emerging growth company can
take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting
standards. BiomX has irrevocably elected not to avail itself of this extended transition period and, as a result, it will adopt
new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
BiomX may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of BiomX’s
first registration statement filed under the United States Securities Act of 1933, as amended, or such earlier time that it is
no longer an emerging growth company. BiomX would cease to be an emerging growth company if it has more than $1.07 billion
in annual revenue, it has more than $700.0 million in market value of its shares held by non-affiliates (and it has been
a public company for at least 12 months and have filed one annual report on Form 10-K) or it issues more than $1.0 billion
of non-convertible debt securities over a three-year period.
Off-Balance
Sheet Arrangements
BiomX
did not have, during the periods presented, and it does not currently have, any off-balance sheet arrangements, as defined in
the rules and regulations of the Securities and Exchange Commission.
Recently
Issued Accounting Pronouncements
A
description of recently issued accounting pronouncements that may potentially impact BiomX’s financial position and results
of operations is disclosed in Note 2 to BiomX’s audited consolidated financial statements.
SELECTED
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Introduction
CHAC is
providing the following unaudited pro forma combined financial information to aid you in your analysis of the financial aspects
of the Business Combination.
The unaudited pro forma combined balance
sheet as of June 30, 2019 gives pro forma effect to the Business Combination as if it had been consummated as of that date. The
unaudited pro forma combined statements of operations for the six months ended June 30, 2019 and the twelve months ended
December 31, 2018 gives pro forma effect to the Business Combination as if it had occurred as of January 1, 2018. This information
should be read together with BiomX’s audited financial statements and related notes and CHAC’s respective unaudited
and audited financial statements and related notes, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations of BiomX Ltd.,” “Management’s Discussion and Analysis of Financial Condition
and Results of Operations of CHAC” and other financial information included elsewhere in this proxy statement.
The unaudited pro forma combined balance
sheet as of June 30, 2019 has been prepared using the following:
|
●
|
BiomX’s unaudited
historical interim consolidated balance sheet as of June 30, 2019
|
|
●
|
CHAC’s audited
historical consolidated balance sheet as of June 30, 2019, incorporated by reference into this proxy statement
|
The unaudited pro forma combined statement
of operations for the six months ended June 30, 2019 has been prepared using the following:
|
●
|
BiomX’s unaudited
historical interim consolidated statement of operations for the six months ended June 30, 2019
|
|
●
|
CHAC’s audited
historical consolidated statement of operations for the year ended June 30, 2019, incorporated by reference into this proxy
statement
|
The
unaudited pro forma combined statement of operations for the twelve months ended December 31, 2018 has been prepared using the
following:
|
●
|
BiomX’s
audited historical consolidated statement of comprehensive loss for the year ended December
31, 2018, as included elsewhere in this proxy statement
|
|
●
|
CHAC’s unaudited
condensed statements of operations for the six months ended June 30, 2018 and the six months ended December 31, 2018
|
Description
of the Transaction
On July 16, 2019, CHAC, Merger Sub, and
BiomX entered into the Merger Agreement pursuant to which, subject to the satisfaction or waiver of certain conditions set forth
therein, BiomX will merge with the Merger Sub with BiomX surviving the merger in accordance with the Israeli Companies Law as a
wholly owned direct subsidiary of CHAC. For more information about the Business Combination, please see the section entitled
“The Business Combination Proposal.” A copy of the Merger Agreement is attached to this proxy statement as Annex
A.
Accounting
for the Business Combination
The Business Combination will be accounted for as a “reverse merger” in accordance with GAAP.
Under this method of accounting, CHAC will be treated as the “acquired” company for financial reporting purposes. This
determination was primarily based on the assumption that BiomX’s shareholders will hold a majority of the voting power of
the combined company, BiomX’s operations comprising the ongoing operations of the combined entity, BiomX’s designees
comprising a majority of the governing body of the combined company, and BiomX’s senior management comprising the senior
management of the combined company. Accordingly, for accounting purposes, the Business Combination will be treated as the equivalent
of a capital transaction in which BiomX is issuing stock for the net assets of CHAC. The net assets of CHAC will be stated at historical
cost, with no goodwill or other intangible assets recorded. The post-acquisition financial statements of CHAC will show the consolidated
balances and transactions of CHAC and BiomX as well as comparative financial information of BiomX (the acquirer for accounting
purposes).
Basis
of Pro Forma Presentation
The historical financial information has
been adjusted to give pro forma effect to events that are related and/or directly attributable to the Business Combination,
are factually supportable and are expected to have a continuing impact on the results of operations of the combined company. The
adjustments presented on the unaudited pro forma combined financial statements have been identified and presented to provide
an understanding of the combined company upon consummation of the Business Combination for illustrative purposes.
The unaudited pro forma combined financial
information is 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 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.
BiomX and CHAC have not had any historical relationship prior to the Business Combination. Accordingly, no pro forma adjustments
were required to eliminate activities between the companies.
There
is no historical activity with respect to Merger Sub, and accordingly, no adjustments were required with respect to this entity
in the pro forma combined financial statements.
The unaudited pro forma combined financial
information has been prepared assuming two alternative levels of redemption into cash of CHAC Shares:
|
●
|
Scenario 1 – Assuming no redemptions for cash: This presentation assumes that no CHAC stockholders exercise redemption rights with respect to their common stock upon consummation of the Business Combination; and
|
|
●
|
Scenario
2 – Assuming redemptions of 2,062,157 shares of CHAC common stock for cash: This presentation assumes that CHAC
stockholders exercise their redemption rights with respect to a maximum of 2,062,157 shares of common stock upon consummation
of the Business Combination at a redemption price of approximately $10.13 per share. The maximum redemption amount is derived
so that there is a minimum remaining in our trust account of $50,000,000, after giving effect to the payments to redeeming
stockholders.
|
Included in the shares
outstanding and weighted average shares outstanding as presented in the pro forma combined financial statements are an aggregate
of 16,625,000 CHAC shares to be issued to BionmX shareholders, comprised of 15,027,781 CHAC shares to be issued to BiomX shareholders
and 1,597,219 vested options and warrants to be issued to BiomX securityholders to purchase CHAC shares. The Company included
the vested options and warrants in the presentation of CHAC shares issued as the Company assumed the shareholders would exercise
their options and warrants since the exercise price is lower than the fair value and are therefore deemed to be in the money.
After the Business Combination, assuming
no redemptions of common stock for cash, CHAC’s current public stockholders will own approximately 20% of the outstanding
CHAC Shares, CHAC’s current directors, officers and affiliates will own approximately 7% of the outstanding CHAC Shares,
and the former stockholders of BiomX will own approximately 73% of the outstanding CHAC Shares. Assuming redemption by holders
of 2,062,157 CHAC’s outstanding common stock, CHAC public stockholders will own approximately 13% of the outstanding CHAC
Shares, CHAC’s Sponsor and current directors, officers and affiliates will own approximately 5% of the outstanding CHAC
Shares, and the former stockholders of BiomX will own approximately 82% of the outstanding CHAC Shares. The above numbers (i)
include the Escrow Shares and (ii) assume that there are no purchase price adjustments or indemnification payments.
PRO
FORMA COMBINED BALANCE SHEET
AS
OF JUNE 30, 2019
(in
thousands)
(UNAUDITED)
|
|
|
|
|
|
|
|
Scenario 1
|
|
|
Scenario 2
|
|
|
|
|
|
|
|
|
|
Assuming No
|
|
|
Assuming Maximum
|
|
|
|
|
|
|
|
|
|
Redemptions into Cash
|
|
|
Redemptions into Cash
|
|
|
|
(A)
BiomX
|
|
|
(B)
Chardan
|
|
|
Pro
Forma
Adjustments
|
|
|
Pro
Forma
Balance Sheet
|
|
|
Pro
Forma
Adjustments
|
|
|
Pro
Forma
Balance Sheet
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
16,145
|
|
|
$
|
697
|
|
|
$
|
70,881
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,300
|
)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500
|
)(3)
|
|
$
|
85,923
|
|
|
|
(20,881
|
)(4)
|
|
$
|
65,042
|
|
Restricted cash
|
|
|
92
|
|
|
|
-
|
|
|
|
-
|
|
|
|
92
|
|
|
|
-
|
|
|
|
92
|
|
Short-term deposits
|
|
|
18,617
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,617
|
|
|
|
-
|
|
|
|
18,617
|
|
Related party receivable
|
|
|
45
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45
|
|
|
|
-
|
|
|
|
45
|
|
Other receivables
|
|
|
228
|
|
|
|
-
|
|
|
|
-
|
|
|
|
228
|
|
|
|
-
|
|
|
|
228
|
|
Prepaid expenses and other current assets
|
|
|
-
|
|
|
|
40
|
|
|
|
-
|
|
|
|
40
|
|
|
|
-
|
|
|
|
40
|
|
Total Current Assets
|
|
|
35,127
|
|
|
|
737
|
|
|
|
69,081
|
|
|
|
104,945
|
|
|
|
(20,881
|
)
|
|
|
84,064
|
|
Marketable securities held in Trust Account
|
|
|
-
|
|
|
|
70,881
|
|
|
|
(70,881
|
)(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Operating lease right-of-use asset
|
|
|
594
|
|
|
|
-
|
|
|
|
-
|
|
|
|
594
|
|
|
|
-
|
|
|
|
594
|
|
Property and equipment, net
|
|
|
1,448
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,448
|
|
|
|
-
|
|
|
|
1,448
|
|
In-process research and development
|
|
|
4,556
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,556
|
|
|
|
-
|
|
|
|
4,556
|
|
Other assets
|
|
|
5
|
|
|
|
1
|
|
|
|
-
|
|
|
|
6
|
|
|
|
-
|
|
|
|
6
|
|
Total Assets
|
|
$
|
41,730
|
|
|
$
|
71,619
|
|
|
$
|
(1,800
|
)
|
|
$
|
111,549
|
|
|
$
|
(20,881
|
)
|
|
$
|
90,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
2,002
|
|
|
$
|
235
|
|
|
|
$ (222
|
)(2)
|
|
$
|
2,015
|
|
|
$
|
-
|
|
|
$
|
2,015
|
|
Short-term leases
|
|
|
202
|
|
|
|
-
|
|
|
|
-
|
|
|
|
202
|
|
|
|
-
|
|
|
|
202
|
|
Taxes payable
|
|
|
-
|
|
|
|
136
|
|
|
|
-
|
|
|
|
136
|
|
|
|
-
|
|
|
|
136
|
|
Total Current Liabilities
|
|
|
2,204
|
|
|
|
371
|
|
|
|
(222
|
)
|
|
|
2,353
|
|
|
|
-
|
|
|
|
2,353
|
|
Promissory note - related party
|
|
|
-
|
|
|
|
500
|
|
|
|
(500
|
)(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Contingent liabilities
|
|
|
903
|
|
|
|
-
|
|
|
|
-
|
|
|
|
903
|
|
|
|
-
|
|
|
|
903
|
|
Long-term lease liabilities
|
|
|
392
|
|
|
|
-
|
|
|
|
-
|
|
|
|
392
|
|
|
|
-
|
|
|
|
392
|
|
Total Liabilities
|
|
|
3,499
|
|
|
|
871
|
|
|
|
(722
|
)
|
|
|
3,648
|
|
|
|
-
|
|
|
|
3,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock subject to redemption
|
|
|
-
|
|
|
|
65,748
|
|
|
|
(65,748
|
)(4)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares
|
|
|
3
|
|
|
|
-
|
|
|
|
(3
|
)(5)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Preferred shares
|
|
|
9
|
|
|
|
-
|
|
|
|
(9
|
)(5)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
(5)
|
|
|
3
|
|
|
|
(1
|
)(4)
|
|
|
2
|
|
Additional paid-in capital
|
|
|
66,831
|
|
|
|
4,654
|
|
|
|
65,747
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
356
|
(5)
|
|
|
137,588
|
|
|
|
(20,880
|
)(4)
|
|
|
116,708
|
|
Retained earnings (Accumulated deficit)
|
|
|
(28,612
|
)
|
|
|
346
|
|
|
|
(1,078
|
)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(346
|
)(4)
|
|
|
(29,690
|
)
|
|
|
-
|
|
|
|
(29,690
|
)
|
Total
Stockholders’ Equity
|
|
|
38,231
|
|
|
|
5,000
|
|
|
|
64,670
|
|
|
|
107,901
|
|
|
|
(20,881
|
)
|
|
|
87,020
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
41,730
|
|
|
$
|
71,619
|
|
|
$
|
(1,800
|
)
|
|
$
|
111,549
|
|
|
$
|
(20,881
|
)
|
|
$
|
90,668
|
|
Pro
Forma Adjustments to the Unaudited Combined Balance Sheet
(A)
|
Derived
from the unaudited interim consolidated balance sheet of BiomX as of June 30, 2019.
|
(B)
|
Derived
from the audited consolidated balance sheet of CHAC as of June 30, 2019.
|
(1)
|
To reflect the release of cash from marketable securities held in the trust account.
|
(2)
|
To reflect the payment of estimated legal, financial advisory and other professional fees related to the Business Combination.
|
(3)
|
To reflect the repayment
in July 2019 of promissory notes to related party.
|
(4)
|
In Scenario 1, which assumes no CHAC stockholders
exercise their redemption rights, the common stock subject to redemption for cash amounting to $65,747,000 would be transferred
to permanent equity. In Scenario 2, which assumes the same facts as described in Items 1, 2 and 3 above, but also assumes
the maximum number of shares are redeemed for cash by the CHAC stockholders, $20,880,000 would be paid out in cash. The $20,880,000,
or 2,062,157, shares of common stock, represents the maximum redemption amount providing for a minimum of $50,000,000 remaining
in the trust account, after giving effect to payments to redeeming stockholders based on a consummation of the Business Combination
on June 30, 2019.
|
(5)
|
To reflect the recapitalization of BiomX through (a) the contribution of all the share capital in BiomX
to CHAC, (b) the issuance of 16,625,000 CHAC Shares and (c) the elimination of the historical accumulated deficit of
CHAC, the accounting acquiree.
|
Under
Scenario 2, as a result of having a minimum of $50,000,000 remaining in the trust account, 500,000 shares of CHAC common stock
would be forfeited by the Sponsor. No entry is reflected in the above pro forma adjustments due to rounding.
PRO
FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2019
(in
thousands, except share and per share data)
(UNAUDITED)
|
|
|
|
|
|
|
|
Scenario 1
|
|
|
Scenario 2
|
|
|
|
|
|
|
|
|
|
Assuming No
|
|
|
Assuming Maximum
|
|
|
|
|
|
|
|
|
|
Redemptions into Cash
|
|
|
Redemptions into Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
Pro Forma
|
|
|
|
(A)
|
|
|
(B)
|
|
|
Pro Forma
|
|
|
Income
|
|
|
Pro Forma
|
|
|
Income
|
|
|
|
BiomX
|
|
|
CHAC
|
|
|
Adjustments
|
|
|
Statement
|
|
|
Adjustments
|
|
|
Statement
|
|
Research and development
|
|
$
|
5,600
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,600
|
|
|
$
|
-
|
|
|
$
|
5,600
|
|
General and administrative
expenses
|
|
|
2,190
|
|
|
|
389
|
|
|
|
(478
|
)(1)
|
|
|
2,101
|
|
|
|
-
|
|
|
|
2,101
|
|
Operating loss
|
|
|
7,790
|
|
|
|
389
|
|
|
|
(478
|
)
|
|
|
7,701
|
|
|
|
-
|
|
|
|
7,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
-
|
|
|
|
(832
|
)
|
|
|
832
|
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Unrealized gain on marketable securities
|
|
|
-
|
|
|
|
(15
|
)
|
|
|
15
|
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other income, net
|
|
|
(787
|
)
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
(793
|
)
|
|
|
-
|
|
|
|
(793
|
)
|
Loss (income) before income
taxes
|
|
|
7,003
|
|
|
|
(464
|
)
|
|
|
369
|
|
|
|
6,908
|
|
|
|
-
|
|
|
|
6,908
|
|
Provision for income taxes
|
|
|
|
|
|
|
127
|
|
|
|
(127
|
)(3)
|
|
|
-
|
|
|
|
-
|
(2)
|
|
|
-
|
|
Net loss (income)
|
|
$
|
7,003
|
|
|
$
|
(337
|
)
|
|
$
|
242
|
|
|
$
|
6,908
|
|
|
$
|
-
|
|
|
$
|
6,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic
and diluted
|
|
|
|
|
|
|
1,996,149
|
|
|
|
23,378,851
|
(4)
|
|
|
25,375,000
|
|
|
|
(2,562,157
|
)(4)
|
|
|
22,812,843
|
|
Basic and diluted net loss
per share
|
|
|
|
|
|
$
|
0.15
|
|
|
|
|
|
|
$
|
0.27
|
|
|
|
|
|
|
$
|
0.30
|
|
PRO
FORMA COMBINED STATEMENT OF OPERATIONS
TWELVE
MONTHS ENDED DECEMBER 31, 2018
(in
thousands, except share and per share data)
(UNAUDITED)
|
|
|
|
|
|
|
|
Scenario 1
Assuming
No
Redemptions into Cash
|
|
|
Scenario 2
Assuming
Maximum Redemptions into Cash
|
|
|
|
(C)
BiomX
|
|
|
(D)
CHAC
|
|
|
Pro
Forma Adjustments
|
|
|
Pro Forma Income Statement
|
|
|
Pro
Forma Adjustments
|
|
|
Pro Forma Income Statement
|
|
Research and development
|
|
$
|
9,135
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,135
|
|
|
$
|
-
|
|
|
$
|
9,135
|
|
General and administrative
expenses
|
|
|
3,360
|
|
|
|
17
|
|
|
|
-
|
|
|
|
3,377
|
|
|
|
-
|
|
|
|
3,377
|
|
Operating
loss
|
|
|
12,495
|
|
|
|
17
|
|
|
|
-
|
|
|
|
12,512
|
|
|
|
-
|
|
|
|
12,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
-
|
|
|
|
(55
|
)
|
|
|
55
|
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Unrealized loss on marketable securities
|
|
|
-
|
|
|
|
21
|
|
|
|
(21
|
)(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other expense, net
|
|
|
225
|
|
|
|
-
|
|
|
|
-
|
|
|
|
225
|
|
|
|
-
|
|
|
|
225
|
|
Loss (income) before income taxes
|
|
|
12,720
|
|
|
|
(17
|
)
|
|
|
34
|
|
|
|
12,737
|
|
|
|
-
|
|
|
|
12,737
|
|
Provision for income taxes
|
|
|
|
|
|
|
8
|
|
|
|
(8
|
)(2)
|
|
|
-
|
|
|
|
-
|
(2)
|
|
|
-
|
|
Net loss (income)
|
|
$
|
12,720
|
|
|
$
|
(9
|
)
|
|
$
|
26
|
|
|
$
|
12,737
|
|
|
$
|
-
|
|
|
$
|
12,737
|
|
Weighted average shares outstanding, basic and
diluted
|
|
|
|
|
|
|
1,782,502
|
|
|
|
23,592,498
|
(3)
|
|
|
25,375,000
|
|
|
|
(2,562,157
|
)(3)
|
|
|
22,812,843
|
|
Basic and diluted net loss (income)
per share
|
|
|
|
|
|
$
|
0.01
|
|
|
|
|
|
|
$
|
0.50
|
|
|
|
|
|
|
$
|
0.56
|
|
Pro
Forma Adjustments to the Unaudited Combined Statements of Operations
(A)
|
Derived
from the unaudited interim consolidated statement of operations of BiomX for the six months ended June 30, 2019.
|
(B)
|
Derived
from the audited consolidated statement of operations of CHAC for the six months ended June 30, 2019.
|
(C)
|
Derived from the audited consolidated statement of comprehensive loss of BiomX for the year ended December 31, 2018.
|
(D)
|
Derived from the unaudited statements of operations of CHAC for the twelve months ended December 31, 2018.
|
(1)
|
Represents an adjustment to eliminate direct, incremental
costs of the Business Combination which are reflected in the historical consolidated financial statements of BiomX and CHAC
in the amount of $319,000 and $159,000, respectively, for the six months ended June 30, 2019. There were no such amounts recorded
for the twelve months ended December 31, 2018.
|
|
|
(2)
|
Represents an adjustment to eliminate interest income and
unrealized gains/losses on marketable securities held in the trust account as of the beginning of the period.
|
(3)
|
To
record normalized blended statutory income tax benefit rate of 23% for pro forma financial presentation purposes resulting
in the recognition of an income tax benefit, which however, has been offset by a full valuation allowance as the combined
company expects to incur continuing losses.
|
(4)
|
The
calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that CHAC’s Initial
Public Offering occurred as of the earliest period presented. In addition, as the Business Combination is being reflected
as if it had occurred at the beginning of the periods presented, the calculation of weighted average shares outstanding for
basic and diluted net loss per share assumes that the shares have been outstanding for the entire periods presented. This
calculation is retroactively adjusted to eliminate the number of shares redeemed for the entire period.
|
The
following presents the calculation of basic and diluted weighted average common shares outstanding. The computation of diluted
loss per share excludes the effect of warrants to purchase 6,400,000 shares of common stock because the inclusion of any of these
securities would be anti-dilutive.
|
|
Scenario 1
Combined
(Assuming No
Redemptions
Into Cash)
|
|
|
Scenario 2
Combined
(Assuming
Maximum
Redemptions
Into Cash)
|
|
Weighted average shares calculation, basic and diluted
|
|
|
|
|
|
|
CHAC public shares
|
|
|
5,000,000
|
|
|
|
2,937,843
|
|
CHAC Sponsor shares
|
|
|
1,750,000
|
|
|
|
1,250,000
|
|
CHAC shares purchased by BiomX shareholders from public shareholders
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
CHAC shares issued in Business Combination
|
|
|
16,625,000
|
|
|
|
16,625,000
|
|
Weighted average shares outstanding
|
|
|
25,375,000
|
(1)
|
|
|
22,812,843
|
(1)
|
Percent of shares owned by BiomX holders
|
|
|
73.4
|
%
|
|
|
81.6
|
%
|
Percent of shares owned by other CHAC holders
|
|
|
26.6
|
%
|
|
|
18.4
|
%
|
(1) Does not include shares issuable pursuant to (i)
the exercise of CHAC Warrants (up to 3,500,000 shares) and Private CHAC Warrants (up to 2,900,000 shares), (ii) agreements with
certain stockholders of BiomX (6,000,000 shares), outstanding options under existing BiomX equity incentive plans (up to approximately
3,836,000 shares), and shares issuable under the 2019 Omnibus Long-Term Incentive Plan which is being presented to stockholders
for approval at the Special Meeting (up to an estimated 2,981,000 shares)
BIOMX
LTD.’S BUSINESS
Overview
BiomX is a preclinical stage microbiome
product discovery company developing products using both natural and engineered phage technologies designed to target and destroy
bacteria that affect the appearance of skin, as well as harmful bacteria in chronic diseases, such as IBD, liver disease and cancer.
Bacteriophage, or phage, are viruses that target bacteria and are considered inert to mammalian cells. By developing proprietary
combinations of naturally occurring phage and by creating novel phage using synthetic biology, BiomX develops phage-based therapies
intended to address large-market and orphan diseases. BiomX’s approach is driven by the convergence of several factors:
rapidly increasing understanding of phage, including the links between phage–behaviors and their genomes; growing evidence
that harmful bacteria are present and involved in chronic diseases, such as IBD, that could, in principle, be treated with phage;
as well as by a growing number of anecdotal reports from different academic centers of successful compassionate use administration
of phages to seriously ill patients who were unresponsive to other therapies. BiomX believes its phage therapeutic product candidates
have the ability to treat conditions and diseases by precisely targeting pathogenic bacteria without disrupting other bacteria
or the healthy microbiota.
BiomX is developing BX001, its lead
product candidate, to modify the appearance of skin in a range of skin types, including in oily and acne-prone skin. Its lead
product candidate, BX001, is a topical gel that includes a combination of naturally occurring phage that specifically target Proprionibacterium
acnes or P. acnes on the skin. P. acnes is thought to be associated with acne vulgaris (“acne”),
and the local inflammation of cells surrounding hair follicles in this condition. In 2019, BiomX will be initiating clinical testing
to demonstrate the safety and tolerability of BX001 in 30 healthy adults and in 75 individuals with acne. BiomX will also be examining
exploratory endpoints of reduction of P. acnes and effects on the skin microbiome. BiomX expects results from this trial
in the first quarter of 2020.
BX002
is BiomX’s therapeutic phage product candidate designed to treat IBD, targeting bacterial strains isolated from IBD patients
that were shown to be pro-inflammatory in animal models and may have a role in the onset and aggravation of the disease. BX002
is a therapeutic phage cocktail product candidate targeting strains of Klebsiella pneumoniae, (“K. pneumoniae”),
that are associated with the development of IBD. In BiomX’s BMX-IBD-006 study, BX002 led to rapid reductions in levels of
these K. pneumoniae strains in a mouse model colonized with high titers (“levels”) of K. pneumoniae.
There are up to 1.6 million patients in the United States with IBD. While there are multiple therapies that can relieve symptoms
and induce remission in IBD, not all patients respond, and most of those who do respond experience periods of disease flares.
BiomX expects to file an IND for BX002 in 2020.
BX003
is BiomX’s therapeutic phage product candidate targeting bacteria associated with primary sclerosing cholangitis (“PSC”),
a rare inflammatory liver disease. BX003 is a therapeutic phage cocktail product candidate that targets K. pneumoniae strains
associated with the development of PSC, which is characterized by chronic inflammation leading to scarring of the bile ducts both
inside and outside the liver and the accumulation of toxic levels of bile acids. PSC is a progressive disease for which there
are no approved therapies, and which often eventually leads to liver failure. PSC is an underdiagnosed orphan disease with an
estimated prevalence in the United States of approximately 30,000. BiomX expects to file an IND for BX003 in 2021.
BiomX
is also developing synthetically engineered phage designed to target strains of bacteria found in colorectal cancer (“CRC”)
tumors.
BiomX’s
CRC program incorporates its expertise in identifying and validating associations of specific strains of bacteria with human disease
with BiomX’s synthetic biology capabilities designed to deliver phage with therapeutic potential to tumors. Only a small
percentage of the 141,000 new cases of CRC in the United States each year respond to immunotherapy. This lack of response is believed
to be due to the lack of novel tumor antigens and scarcity of immune cells in colorectal tumors. BiomX has observed in vitro
and in vivo that it can use phage to target strains of Fusobacterium nucleatum, a bacterial species that is
highly enriched in colorectal tumors and is believed to be pathogenic. BiomX plans to use phage to deliver payload genes, such
as those encoding immunostimulatory proteins, directly to tumors while also leading to eradication of these bacteria. BiomX plans
to optimize the insertion and expression of these genes using synthetic engineering. BiomX then intends to examine the activity
of the engineered phage in preclinical models. BiomX believes that this approach of using phage to deliver therapeutic payloads
has the potential to deliver therapeutic benefit in additional cancer types as well as in a broad range of other diseases.
All
of BiomX’s therapeutic product candidates derive from its proprietary platform, which is first used to discover and validate
the association of specific bacterial strains with human disease and is then used to develop rationally designed phage combinations
(“cocktails”), that target these pathogenic bacteria. In BiomX’s therapeutic discovery efforts, BiomX uses its
proprietary platform both to identify naturally occurring phage and to create synthetically engineered phage that target pathogenic
bacteria. BiomX then designs cocktails containing multiple phage with complementary functions and test these product candidates
in vitro and in vivo. The use of specific combinations of phage is a critical and proprietary aspect of BiomX’s
approach which is designed to maximize efficacy while minimizing the potential emergence of resistant bacterial strains. BiomX
has observed that these therapeutic product candidates are able to selectively kill specific strains of bacteria, leading to alterations
in the microbiome composition that BiomX believes will confer therapeutic benefit by impacting the patient’s inflammatory
response. BiomX believes that with appropriate and stringent phage selection and testing, BiomX can endow its therapeutic product
candidates with disease-fighting properties that go well beyond those of any individual phage.
According
to published studies, between 10 and 100 trillion symbiotic microorganisms, including bacteria and viruses, collectively referred
to as the microbiome, are essential components of the human body. The microbiome contributes to metabolism, protects against pathogens
and interacts with the immune system. Imbalance of the microbiome on the skin is associated with effects on the appearance of
skin. Imbalance of the microbiome within the body is associated with multiple diseases. BiomX seeks to become a leader in restoring
health to the microbiome by deploying phage to remove potentially harmful bacteria.
BiomX
combines multiple technologies developed by its scientific founders and described in leading scientific journals. BiomX’s
scientific founder Rotem Sorek, a Professor in the Department of Molecular Genetics at the Weizmann Institute of Science, is a
world leader in phage genomics and bacterial defense mechanisms. BiomX’s scientific founder Eran Elinav, a Professor in
the Department of Immunology at the Weizmann Institute of Science, is an expert in investigating the link between the microbiome
and human health and disease. BiomX’s scientific founder Timothy K. Lu is a world leader in synthetic biology approaches
to engineering gene circuits and phage, leading the Synthetic Biology Group in the Department of Electrical Engineering and Computer
Science and the Department of Biological Engineering at the Massachusetts Institute of Technology. In addition, through the acquisition
of the privately held Israel-based company RondinX in 2017, BiomX gained access to high throughput genomic analyses techniques
developed by Eran Segal, a leading computational biologist from the Department of Computer Science and Applied Mathematics at
the Weizmann Institute of Science. The combination of the technologies and expertise from these leaders in each of their respective
fields is critical in enabling BiomX to focus on treating complex human diseases and conditions by precise manipulation of the
microbiome.
As of June 30, 2019
BiomX had an accumulated deficit of $28.6 million and expects that for the foreseeable future BiomX will continue to incur
significant expenses as BiomX advances its product candidates from discovery through preclinical development and clinical trials
and seek regulatory approval of BiomX’s product candidates. BiomX does not have any products approved or available for sale,
BiomX’s products are still in the preclinical development stage, and BiomX has not generated any revenue from product sales.
BiomX’s
Strategy
BiomX’s
goal is to develop multiple products based on the ability of phage to precisely target components of the microbiome and on BiomX’s
ability to screen, identify and combine different phage, both naturally occurring and created using synthetic engineering, to
develop these treatments. BiomX intends to:
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Investigate
the safety, tolerability and effect of BX001 and advance BX001 through clinical testing
conducted with a leading multinational cosmetics company using the available regulatory
pathways in the relevant jurisdictions and then commercialize BX001 with a partner.
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Develop
BX002 and BX003 for the treatment of microbiome-related gastrointestinal immune disorders
like IBD and PSC.
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Evaluate
the preclinical efficacy of BiomX’s synthetic engineering approach for delivering
therapeutic payloads to bacteria that are resident within tumors.
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Identify
new targets for the indications BiomX is pursuing by expanding its internal database
of clinical microbiome samples and its bioinformatics capabilities.
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Develop
and partner microbiome-based biomarker tests, based on BiomX’s proprietary XMarker
platform, that can be used for disease diagnosis or as companion diagnostics.
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Pipeline
The
chart below identifies each of product candidates and BiomX’s biomarker test and their current status.
The
microbiome and human disease
The
microbiome refers to the collection of microorganisms, including phage, that reside on the skin, line the gastrointestinal tract,
and reside elsewhere in the body. The vast majority of these microorganisms are not pathogenic and instead exist in a symbiotic
state, enabling the body to function normally by protecting against proliferation of pathogenic strains, educating the immune
system and assisting in digestion. Imbalances in the composition of the microbiome have been found in multiple diseases. Many
therapeutic and non-therapeutic approaches are designed to restore this balance. In some cases, these approaches involve supplementation
with beneficial strains of bacteria. In others, treatments are being developed based on substances that are intended to shift
the composition of the microbiome by restricting the growth of some microorganisms or promoting the growth of others or both.
Skin
conditions including acne, changes such as hormonal changes, increased secretion of oil from sebaceous glands, or changes in the
immune system result in imbalances in the skin microbiome. Changes in microbiome composition also have been linked to multiple
diseases, including IBD; PSC; CRC; autoimmune diseases such as diabetes; nervous system diseases, such as autism and multiple
sclerosis; and cardiovascular disease. While the importance of the microbiome in initiating or exacerbating some of these diseases
has not been firmly established, there are a number of diseases in which inducing changes in microbiome composition has been observed
to be associated with reductions in disease symptoms.
BiomX’s
approach in its therapeutic programs is based on targeting those specific strains of pathogenic bacteria in the microbiome that
are strongly associated with disease while leaving the rest of the microbiome untouched. BiomX’s goal is to restore the
natural, healthy balance of the microbiome with rationally designed phage cocktails. Using BiomX’s proprietary methods,
BiomX can generate and screen large libraries of phage, prioritizing potential candidates based on selectivity and potency as
well as a number of other parameters which, BiomX believes, are important for drug development such as safety, stability and manufacturability.
History
of uses of phage
Bacteriophage
or phage are viruses that infect bacteria. They were discovered in 1915 and used widely to treat infections in the early 1900s,
a decade before antibiotics were discovered. Descriptions of the use of phage therapy in thousands of individuals, mostly in the
former Soviet Union and Eastern Europe, have been published, but the effectiveness and safety of these therapies have not been
definitively determined due, in part, to the lack of rigorously controlled clinical trials.
These
early uses of phage were limited by the state of translational and clinical development at that time. Bacterial resistance quickly
emerged to early phage therapies because of the limited ability to formulate effective cocktails. In turn, this limitation was
due to a lack of know-how, such as the lack of a deep understanding of phage genomic composition. At the time, there were no known
methods to control phage that had the propensity to infect bacteria without causing immediate lysis, a process now known as lysogeny.
There were also technical hurdles to manufacturing phage of sufficient purity and stability to assure consistent results when
put to therapeutic use. A consistent theme from these early trials, more recent, well-controlled trials, and cases of compassionate
use is that phage therapy is generally well-tolerated, with a general lack of reports of serious adverse events. Phage have already
been approved as both agricultural bacterial pest treatments by the USDA, as well as for use in cleaning food facilities and as
a food additive for human consumption by the FDA and EMA. Phage have been approved in the past in food or food contact surface
categories, and in these categories have met the criteria to be considered as “generally recognized as safe” (“GRAS”).
With
the advent of antibiotics, the high selectivity of phage was seen as a disadvantage, especially for the empiric treatment of acute
infections where the causative pathogen has not yet been identified. With the current understanding of the limitations and potential
undesired effects of antibiotics, and with the advent of modern molecular biology tools, high throughput genomic sequencing and
computational capabilities, BiomX seeks to convert endogenous properties of phage into product candidates that confer potential
advantages and use genetic and process engineering to overcome historical hurdles, opening up a new era in the development of
phage.
BX001
for the improvement of skin appearance
BX001
is BiomX’s topically administered product candidate intended to improve the appearance of oily and acne-prone skin. It contains
a cocktail of phage that helps balance the skin microbiome by targeting Propionibacterium acnes (“P. acnes”),
a bacteria associated with acne. BiomX has observed that BX001 is effective on more than 96 percent of clinical bacterial isolates
tested in vitro, including variants that are resistant to antibiotics. In 2019, BiomX plans to initiate clinical testing:
a safety patch test study enrolling 30 healthy volunteers and a study enrolling 75 individuals with acne. The endpoint of both
studies is safety and tolerability of BX001. Exploratory endpoints to evaluate the effect of BX001 on P. acnes, overall
skin microflora and on skin appearance will also be assessed. BiomX anticipates data from these trials to be available in the
first quarter of 2020.
Background
BiomX
believes that potential users of BX001 include individuals with oily skin, or those with skin conditions. One such condition is
acne. Acne is one of the most common skin conditions in the world and is a chronic inflammatory condition characterized by the
clogging of skin pores and associated local skin lesions. Acne lesions are believed to result from an interaction of multiple
pathogenic factors, all of which can be associated with dysregulation of the skin microbiome resulting in the overgrowth of certain
bacteria, in particular strains of P. acnes. Excessive proliferation of P. acnes along with excessive production
of oily secretions and clogging, leads to inflammation of skin structures known as the pilosebaceous units that consist of a hair
shaft, hair follicle, sebaceous gland, and pili muscle as shown below.
Figure
1. Structure of the pilosebaceous unit.
P.
acnes induces inflammation through a number of mechanisms:
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Secretion
of enzymes that degrade lipids in the hair follicle;
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Expression
of surface proteins and secretion of lipid metabolites that promote inflammation;
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Expression
of heat shock proteins that promote the innate immune system;
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Production
of porphyrins that contribute to tissue damage and inflammation;
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Induction
of T helper cells, stimulating the production of IL-17 and other inflammatory cytokines;
and
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Formation
of biofilms which increases bacterial adherence and contribute to antimicrobial resistance.
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According
to market studies, acne is estimated to affect 9.4 percent of the global population, making it the eighth most prevalent disease
worldwide. There are an estimated 50 million people in the United States who suffer from acne each year, 85 percent of whom are
between the ages of 12 to 24 years.
Depending
on the regulatory framework in its jurisdiction, cosmetic or personal care products may be available to improve the appearance
of blemishes and skin. In recent years, new cosmetic and personal care products are being introduced that contain skin microbiome
modifying agents, such as probiotics or live organisms, that help promote the balance of the microbiome on, and thus the appearance
of, the skin.
BX001
for acne prone skin
BX001
is a topically administered gel, containing natural phage, intended to improve the appearance of skin by helping to control P.
acnes overgrowth and thus modulating the skin microbiome. Each of the natural bacteriophage in the formulation is strictly
lytic in nature, has been isolated and purified from the environment and thoroughly characterized. BX001 has been shown to be
active on antibiotic resistant P. acnes strains and does not target other bacteria on the skin. Furthermore, it has been
observed to penetrate biofilms, a matrix secreted by the bacteria which surrounds them and makes them less accessible to substances
such as antibiotics. Biofilms exist in the pilosebaceous unit, where undesirable bacteria such as P. acnes are found. These
natural bacteriophage have been observed to be well-tolerated using accepted methods in internationally recognized models of human
skin.
Development
plan
In
2019, BiomX intends to initiate clinical testing of BX001 consisting of a single application patch test study in healthy
adults and a multiple application study in individuals with acne. In the patch test study, patches containing each of the two
doses of BX001 or a control comprised of the gel formulation alone (without the phage cocktail) will be
applied for 48 hours on the backs of study volunteers. Main readouts will be safety and tolerability as assessed by a
dermatologist.
The
multiple application study is a four-week randomized, double-blind, dose-finding, placebo controlled single center trial in which
BiomX expects to enroll 75 individuals with mild to moderate acne. These individuals will be divided into three cohorts: a placebo
cohort and two cohorts with BX001, each receiving a different amount of phage. The primary endpoints are safety and tolerability
and the exploratory endpoints will examine the reduction in P. acnes levels and changes in the skin microbiome. BiomX anticipates
data from these trials to be available in the first quarter of 2020.
If
BiomX observes promising results from its initial clinical testing, BiomX intends to conduct an eight-week placebo-controlled
clinical test of BX001 in which BiomX expects to enroll 100 patients divided into a placebo cohort and a cohort with BX001. The
primary endpoints are safety and efficacy, as measured by parameters related to changes in the skin microbiome. BiomX expects
to initiate this clinical test in the second quarter of 2020, with results available by the end of 2020.
Preclinical
data
BiomX
conducted preclinical studies on in vitro and ex vivo systems. First, BiomX assembled a panel of P. acnes
bacterial isolates that BiomX used to screen a library of phage isolates obtained from clinical and environmental sources. Using
this method, tens of phages that could inhibit the growth of strains of P. acnes in BiomX’s panel were identified.
BiomX made two important observations in these initial screens. First, although all the tested bacterial strains were variants
of P. acnes, there was sufficient variation among them to prevent any individual phage from having equal potency against
all the bacterial strains. Second, there was sufficient variation among naturally occurring phage such that there was at least
one phage with high potency against each strain of bacteria. The table below shows relevant data.
Figure
2. Example of data from screening of a library of phage against a panel of P. acnes strains measuring the level of sensitivity
to exposure to phage.
Together
these results suggest that a phage product with the potential for broad efficacy would require the use of more than one phage
and that a limited number of phage may be sufficient to address the variation in P. acnes sensitivity. BiomX incorporated
three different phage into BiomX’s BX001 topical product candidate after extensive qualification of individual phage for
factors including potency across different P. acnes strains, ability to penetrate biofilm, manufacturability and stability.
In addition, BiomX assessed the ability of these phage to function in combination without interfering with each other. The combination
of phage BiomX chose was found to exhibit activity across an independent panel of clinical isolates of P. acnes. In extended
in vitro assays, treatment with BX001 was associated with the complete eradication of one P. acnes strain with no
appearance of resistant mutant strains. Following exposure of an additional P. acnes strain in vitro, initial eradication
was followed by the appearance only of growth compromised resistant strains with very low growth potential.
Figure
3. BX001 was associated with eradication of P. acnes and no resistant strains emerged on the target strain PA1. The figure
shows the growth of P. acnes bacteria, as measured by optical density or OD, in a liquid in vitro culture with and
without addition of the BX001 cocktail. Without BX001, the number of bacteria increases with time (higher OD density) while, in
the presence of BX001, initial growth is observed followed by immediate killing and then no recovery of growth for the length
of the study.
A
critical challenge for any microbiome balancing product is the need to penetrate biofilms. BiomX has observed that P. acnes
phage are able to penetrate the biofilm secreted by P. acnes. In in vitro experiments, phage reduced the number
of viable bacteria within biofilm by 100,000 fold within 24 hours resulting in undetectable levels after 48 hours. Under the same
conditions, erythromycin, a common antibiotic, reduced bacterial levels by approximately 100 fold after 48 hours.
Figure
4. Phage show potent antibacterial activity even in the presence of biofilms.
BX001
showed microbiome balancing activity when exposed to clinical isolates of P. acnes strains showing that 96 percent of these
strains were highly sensitive, including strains that were resistant to antibiotics. BiomX then tested the ability of BX001 to
inhibit proliferation of P. acnes in an ex vivo model of artificial human skin infected with the bacteria. In this
model, applying BX001 gel topically resulted in significant reduction of bacterial counts following one application and the complete
elimination of P. acnes following two applications.
Figure
5. BX001 was effective in reducing the level of P. acnes colonized on human skin.
The
safety of BX001 has been evaluated using OECD-recognized models of irritation, currently used in the cosmetics and pharmaceutical
industry for topical products. In the EpiDerm™ model of human skin and the EpiOcular™ eye irritation test, no irritation
occurred even when BX001 was applied at very high concentration, or approximately 100-fold the maximal planned dose, suggesting
that BX001 is not likely to be an irritant to the skin or eyes. The studies were carried out under strict Good Laboratory Practice
(“GLP”) procedures. A GLP permeation study using human skin tissue showed a very low amount of phage, 0.0039% of the
total amount applied, apparently penetrated the skin. An additional study with a synthetic membrane accepted in the industry as
representative of human epidermis, showed no permeation through this layer.
BX002
for the treatment of IBD
BX002
is a therapeutic phage cocktail product candidate BiomX is developing for the treatment of IBD, a disease that is strongly linked
to specific alterations in the microbiome. In BiomX’s BMX-IBD-006 study, BX002 led to sustained reductions in levels of
pathogenic target bacteria in mouse models. BiomX plans to conduct a pre-IND meeting with the FDA and anticipate filing an IND
for BX002 in 2020. Following initiation of a Phase 1 clinical trial of BX002, BiomX expects to receive results in the second half
of 2020. If BiomX observes promising results from Phase 1 clinical testing, BiomX plans to initiate a Phase 2 clinical trial of
BX002 in the first half of 2021, with interim results from this trial expected in the second half of 2021.
IBD
disease background
IBD
is a group of chronic autoimmune and inflammatory conditions of the colon and small intestine, which is characterized by abdominal
pain, diarrhea, weight loss, fatigue and anemia. Ulcerative colitis (“UC”) and Crohn’s disease (“CD”)
are the principal sub-types of IBD. Both UC and CD can have periods of varying intensity ranging from severe inflammation or flares
causing patients to be symptomatic, to periods of remission where patients are free of most symptoms. According to a report by
the Crohn’s and Colitis Foundation, IBD affects as many as 1.6 million people in the United States, most of whom are diagnosed
before the age of 30.
Current
treatment of IBD consists mainly of immunosuppressive therapies. Treatment options depend on the patient’s disease severity
and responsiveness to therapy. Medications that treat mild to moderate IBD are generally well tolerated. However, as the severity
of IBD increases, the potential toxicities of the medications required to manage the disease also increase. For example, treatment
of mild-to-moderate patients typically starts with topical agents, such as 5-aminosalicylic acid (“5-ASA”). For those
IBD patients who do not respond to 5-ASAs, or those with more severe disease, corticosteroids are generally used to induce clinical
remission. However, studies report that sustained remissions are only obtained by approximately 40% of patients receiving corticosteroids.
Long-term treatment with corticosteroids is associated with multiple adverse effects. Patients with moderately to severely active
IBD who become nonresponsive or intolerant to corticosteroids are treated with either biologics such as anti-TNF antibodies or
small molecule immunomodulators such as 6-mercaptopurine or azathioprine. Immunomodulators generally show a delay in onset of
action of one to three months, and can result in neutropenia, pancreatitis, nephrotoxicity and hepatotoxicity. The treatment of
IBD patients with moderately to severely active inflammation is dominated by anti-TNF biologics given their improved efficacy
and side effect profile relative to immunomodulators.
The
microbiome’s role in IBD
Conventional
medical wisdom defines IBD as purely an inflammatory disease. However, similar to other indications such as gastric ulcers where
both a bacterial cause and an anti-bacterial solution were found, scientific attention is turning to infection of the gut or dysfunction
in gut bacteria as potential causes for IBD. The hypothesis that IBD was a result of a gastrointestinal infection started in the
early 20th century, when IBD patients were sometimes treated with early anti-infective compounds such as potassium
permanganate. After the discovery of antibiotics, broad antibacterial therapies were used until further studies identified IBD
as an inflammatory disease. The hypothesis that the development of IBD was related to changes in the gut microbiome, however,
continued. A recent development in the treatment of IBD and related disorders is the use of therapies directed against the gastrointestinal
microbiome, such as fecal transplants, which induce a significant increase in remission in UC. While the effectiveness of fecal
transplants may be variable, in one trial published in the Journal of the American Medical Association in 2019, 32 percent
of patients receiving pooled fecal transplants from healthy individuals were in steroid-free remission three months post-treatment
compared to 9 percent of controls who received autologous fecal transplants. Over 40 percent of the initial pooled transplant
responders were still in steroid-free remission after twelve months. BiomX believes these results support the hypothesis that
targeting the microbiome can result in therapeutic benefit in patients with IBD while highlighting the opportunity to develop
improved microbiome-directed therapies.
Recent
studies have identified specific strains as potential pathogenic organisms leading to IBD. Among them, specific strains of Klebsiella
bacteria stand out. Elevated levels of Klebsiella are associated with IBD in microbiome samples from patients compared
to healthy controls. In an analysis of two cohorts of IBD patient registries, one from Massachusetts General Hospital (“MGH”),
Prospective Registry in IBD Study at MGH (“PRISM”) and the other from the University of Pennsylvania (“UPenn”),
prospective cohort of pediatric Crohn’s disease patients, the aggregated relative abundance of Klebsiella strains
was significantly higher in patients with IBD than healthy controls as shown in the table below.
Figure
6. The relative abundance of strains of Klebsiella were shown to be elevated in the microbiome of patients with either
CD or UC compared to patients without IBD.
Since
the early 1990s, researchers have been reporting elevated levels of antibodies to Klebsiella in IBD patients. Furthermore,
patients with IBD have levels of circulating Immunoglobulin G (“IgG”) antibodies against K.
pneumoniae that are significantly higher than those found in healthy controls. Pointing the finger even more
strongly at K. pneumoniae as a potential causative factor in IBD,
similar analyses have failed to identify significant differences in IgG antibody levels between healthy controls and IBD patients
for other bacterial strains commonly found in the gastrointestinal tract, including E. coli, E faecalis and B.
fragilis.
Figure
7. Increased titers of high affinity anti-microbiota antibodies that bind to Klebsiella have been detected in patients with IBD.
In
a study published in the journal Science in 2017, germ-free mice inoculated with bacteria from a patient with CD had approximately
three-fold higher levels of Th1 immune response as measured by an elevated population of CD4 T-cells producing interferon gamma.
Imbalances of T cell subsets including Th1 in the intestinal mucosa are hallmarks of IBD. Other experiments reported in this publication
identified a particular strain of K. pneumoniae as a key pathogenic bacteria in these patient samples.
Figure
8. Microbiome samples from IBD patients with either a 7 bacteria mix (left) or only the single K. pneumoniae strain causing
TH1 cell proliferation in germ free mice.
K.
pneumoniae is a species of bacteria that colonizes the mucosal layer of the gastrointestinal system in mammals and may be
pathogenic. There are multiple variants of K. pneumoniae with some estimates of up to 82 types that can be distinguished
by their surface antigens. Different characteristics of K. pneumoniae may be associated with their pathogenic potential.
These include surface antigens and virulence factors, factors that enhance bacterial strains’ ability to survive and thrive,
due to their role in allowing the bacteria to escape destruction by the immune system, or the ability to secrete a genotoxic molecule,
such as colibactin, upon colonization of the gastrointestinal tract.
BX002,
BiomX’s IBD solution
BiomX
is developing BX002, a cocktail of phage that target specific strains of K. pneumoniae that were observed to induce a Th1
response in animal models, as a means of directly and specifically altering the gut microbiome in patients with IBD. BiomX believes
that reducing the levels of these pathogenic bacteria may lower the levels of inflammatory signals that propagate the disease.
As
part of BiomX’s evidence supporting the link between K. pneumoniae and IBD BiomX analyzed microbiome samples from
approximately 250 patients with IBD across multiple geographies. BiomX found that the prevalence of the specific pathogenic K.
pneumoniae was approximately 30 percent in IBD patients across three different geographies. In a subset of French patients
for which clinical metadata was available, higher abundance of the pathogenic K. pneumoniae was found in IBD patients in
flare versus remission. BiomX corroborated the results shown in the Science paper from 2017 by assessing the ability of
specific K. pneumoniae strains to cause gastrointestinal inflammation by transplanting germ-free mice with strains of K.
pneumoniae isolated from IBD patients. Mice receiving these strains of bacteria had statistically significant higher levels
of IFN-gamma expressing CD4 expressing Th1 cells than those receiving placebo.
Figure
9. A K. pneumoniae strain displaying induced IFN-gamma producing T cells. ***P<0.001
BiomX
screened a broad library of phage sources derived from environmental and clinical samples for phage capable of targeting patient-derived
strains of K. pneumoniae that are related to the strain shown to induce a pro-inflammatory response in the germ-free animal
model. BiomX examined the potency of each phage that was isolated on all clinical bacterial isolates and also ranked the lead
candidate phage from these screens based on stability, manufacturability and lack of potential safety concerns. BiomX then further
characterized combinations of these phage for their lack of interference while prioritizing diversity. BiomX observed that when
used in animal models, combinations of phage were associated with the rapid reduction of the bacterial load of the pathogenic
K. pneumoniae strains, though, in some cases, resistant strains emerge after several days. Combining phage that recognize
the bacteria by different mechanisms of action is designed to impair this development of resistance, resulting in sustained reductions
in the level of bacteria which fall below the level of detection after three doses of BX002. Bacteria are eliminated both from
the fecal material and from the mucosal lining where they usually reside.
Figure
10. Combinations of phage were associated with sustained antibacterial activity in mouse models.
BX003
for the treatment of PSC
BX003
is a phage cocktail that BiomX is developing for the treatment of PSC. A majority of PSC patients also suffer from IBD and it
has been found that the development of PSC is associated with a subset of strains of K. pneumoniae. BiomX has identified
phage that target these strains and anticipate holding a pre-IND meeting with the FDA in the first half of 2020, with an anticipated
IND filing for BX003 in 2021. Following initiation of a Phase 1/2 clinical trial of BX003, BiomX expects to receive interim results
in 2021. BiomX anticipates initiating clinical-scale manufacturing for BX003 in the second half of 2020.
PSC
background
PSC
is a rare progressive liver disorder affecting approximately 30,000 patients in the United States according to published studies.
PSC is characterized by inflammation and fibrosis within the bile ducts, which transport bile within the liver and from the liver
to the intestines. This fibrosis often results in the obstruction or interruption of bile flow from the liver, a condition known
as cholestasis. Symptoms associated with PSC include fatigue and itching, or pruritus, followed by jaundice, characterized by
yellowing of the skin, mucous membranes, and whites of the eyes. In some cases, the liver may also become abnormally enlarged.
Scarring of the liver, or cirrhosis, eventually develops and many individuals will ultimately require a liver transplant. PSC
patients suffer from increased risk of cancer in the bile ducts and colon. Over 70 percent of individuals with PSC also have UC,
a form of IBD.
Without
a liver transplant, patients with PSC have a median survival after diagnosis of nine to eighteen years. There is currently no
FDA-approved treatment. A number of immunosuppressive and anti-inflammatory agents have been studied in patients with PSC, but
none has been conclusively proven to alter the natural history of this disorder. Liver transplantation is the treatment of choice
for PSC patients with advanced liver disease with forty percent of PSC patients eventually receiving a transplant. Between 1988
and 2015, six percent of all liver transplantations in the United States were due to PSC, a number BiomX believes to be remarkable
given the rarity of this disease. However, in up to twenty percent of patients, even a liver transplant is not curative and PSC
reoccurs.
Role of the microbiome in PSC
The
strong linkage between the microbiome and IBD and the overlap in patients with both PSC and IBD suggest that the microbiome may
also influence the development of PSC, especially given that most of the blood leaving the intestine flows immediately to the
liver. Compromises in the intestinal barrier caused by alterations in the microbiome may expose the liver to altered levels of
toxins, metabolites, and bacteria, which in turn may trigger aberrant bile duct responses.
Figure
11. Schematic representation the gut–liver axis in the pathogensis of PSC. Left, PSC is a chronic inflammatory and progressive
liver disease, which primarily affects large- and medium-sized bile ducts with strictures and dilatations (bile ducts shown in
green) due to inflammatory cells invading the portal system (top right). Pore-forming K. pneumoniae increase gut permeability
(bottom right) and trigger an inflammatory response in the liver.
Additional
evidence to support the role of the microbiome comes from experiments done in germ-free mice. These mice were transplanted with
three groups of human fecal samples: from healthy controls; from PSC patients who also had UC; and from patients who had UC without
having PSC. Mice transplanted with samples from PSC+UC patients had significant increases in the number of IL17 expressing CD4
T cells in the liver. Fecal samples from UC patients or healthy controls failed to induce Th17 response in the liver.
Figure
12. Fecal samples from PSC patients (P), but not healthy controls (H) or UC patients without PSC (U), transplanted into mice increased
the number of IL-17-expressing CD4 cells.
Specific
strains of K. pneumoniae were identified and cultured from the mesenteric lymph-nodes of the colonized mice, confirming
their capability to migrate through the epithelial wall of the gut, resulting in gut barrier disfunction. Further analysis of
human PSC fecal samples showed that strains of K. pneumoniae were enriched in samples from PSC patients. These results
indicated that K. pneumoniae may be a pathogen in the development of PSC.
Figure
13. K. pneumoniae was found to be enriched in fecal samples from PSC patients.
In
the same study, using a human primary intestinal organoid culture system, K. pneumoniae administered on the apical epithelial
surface induced the formation of pores through the monolayer culture. These pores were only formed by strains of K. pneumoniae
isolated from PSC patients. Similar pores were shown to be responsible for the breakdown of the epithelial barrier in animal
models and were linked to activation of Th17 cells.
BX003,
BiomX’s PSC solution
BiomX
has analyzed over 200 human fecal samples from patients with PSC across multiple geographies, as well as healthy controls and
patients with UC from the same regions – in all, over 600 samples. Through this analysis BiomX confirmed the high prevalence
of K. pneumoniae in PSC patients and discovered an association of K. pneumoniae with the disease severity and duration.
Certain clinical K. pneumoniae isolates BiomX cultured from human PSC fecal samples confirmed that these strains induce
Th17 immune responses and are able to induce epithelial permeability in cellular monolayers and in animals. BiomX believes that
its findings support the development of a phage therapy for PSC.
BX003
is a cocktail of K. pneumoniae specific phage that BiomX is optimizing for their ability to function together to eliminate
specific pathogenic strains in PSC, while limiting the ability of resistance mutants to emerge.
Figure
14. Different phage cocktails tested in the development of BX003. The figure shows the growth of K. pneumoniae strains
isolated from PSC patients, as measured by optical density or OD, in a liquid in vitro culture with and without addition
of different phage cocktails.
CRC
Program
BiomX
is developing phage designed to target specific strains of bacteria that are believed to be pathogenic and that are found in the
tumors of patients with CRC. BiomX’s goal is not only to use these phage to eliminate these bacteria, but also to have these
destroyed bacteria serve as immunostimulators, becoming beacons to help activate a tumor-directed immune response. In contrast
to other therapeutic product candidates in BiomX’s pipeline that primarily consist of naturally occurring phage or evolved
variants, BiomX’s CRC phage program is highly dependent on its synthetic engineering expertise to engineer phage genomes
to both increase the antibacterial potency of naturally occurring bacterial strains as well as to potentially deliver immunostimulatory
payloads to tumors.
Turning
immunologically cold tumors into hot tumors
Tumors
enriched in mutations and immune cells, such as melanoma and non-small cell lung cancer (“NSCLC”), are considered
“hot” tumors, while those with few mutations and little immune infiltration, such as pancreatic, prostate cancer,
and the majority of CRC are called “cold” tumors. Hot tumors are considered good candidates for immuno-oncology therapies
because these tumors are populated with immune cells that have the potential to have anti-tumor activity if it were not for the
presence of various immunosuppressive impediments. There are many approaches that have been approved and are under development
for addressing these impediments and activating tumor destruction through immunological attack.
Cold
tumors have poor responses to most immuno-oncology therapies because these tumors are largely devoid of immune cells. Various
methods are being investigated with the intent of turning cold tumors into hot tumors. The underlying premise behind most of these
methods is to both induce inflammation in the tumor and expose tumor antigens that can be recognized by the immune system. The
most direct ways of accomplishing this is through direct injection of immunostimulatory molecules and oncolytic viruses into tumors.
Unfortunately, not all tumors are easily accessible for these direct injection methods.
BiomX
believes that it can use phage to convert cold tumors into hot tumors by targeting bacteria that are naturally resident in these
tumors and releasing an immunostimulatory payload. BiomX’s hypothesis is that, by attacking these bacteria with phage, it
can expose bacterial proteins and other components brought by the phage to the human immune system, triggering an influx of immune
cells. Two factors encourage BiomX to believe that this will be successful: First, the presence of specific strains of bacteria
in the tumors; and second, the high specificity of phage for their target bacterial strains. Together, these factors suggest to
BiomX that phage administered intravenously can target the bacteria resident in tumors throughout the body, including those tumors
that are invisible to imaging or otherwise inaccessible for direct injection. The antibacterial activity of the phage has the
potential to have a direct impact especially on those tumors in which the bacteria is believed to support tumor proliferation
or help it to evade the immune system. The lysis or destruction of these bacteria by the phage can serve as an immunostimulatory
event, helping to recruit components of the immune system, thus turning these tumors into immunologically hot tumors. In principle,
BiomX believes that these phage also have the potential to serve as gene delivery vectors capable of delivering genes encoding
various immunostimulatory molecules.
Figure
15. Design of BiomX’s therapeutic product candidates in CRC and potentially in other cancers. We believe that phage can
target bacteria in cold tumors and deliver payloads capable of activating an immune response.
BiomX
believes that phage can provide many of the potential immuno-oncology benefits of oncolytic viruses via a more convenient and
efficient route of administration. Rather than relying on intratumoral injection, phage may be able to efficiently target tumors
via systemic intravenous administration. While some oncoviruses also have the possibility to be administered systemically, their
ability to specifically target tumors is limited, leading to sequestration in non-tumor tissues such as the liver and spleen,
reducing the effective dose and potentially introducing undesired toxicity.
CRC Overview
CRC
is the second leading cause of cancer deaths in the United States. The Centers for Disease Control and Prevention (“CDC”) estimates
that there were 141,270 new cases of CRC and 52,286 CRC related deaths in the United States in 2016. Over 30 percent of the patients
with a new diagnosis of CRC will die within five years. The risk of CRC increases with age; 90 percent of cases are diagnosed
in individuals 50 years of age or older. Despite effective screening, leading to a reduction in the mortality from CRC, the number
of cases remains high and is expected to increase worldwide to 2.2 million by the year 2030.
Treatment
of CRC typically involves the use of cytotoxic chemotherapy and radiation with or without surgery. Treatment with anti-epidermal
growth factor receptor or EGFR antibodies as monotherapy or in combination with chemotherapy has been shown to be effective in
a subset of CRC patients, however over 40 percent of patients do not respond to anti-EGFR antibody therapies and of those that
do, resistance often develops. To date immuno-oncology therapy has had a limited impact in CRC. The majority of colorectal tumors
are not associated with high numbers of mutations and thus have a limited number of immunologically active tumor antigens. Only
15 percent of colorectal tumors have mutations in mismatch repair genes and microsatellite instability (“MSI”), capable
of generating neoantigens and attracting immune cells. These tumors have been shown to be responsive to treatment with PD-1 checkpoint
inhibitors.
Targeting
the tumor microbiome in CRC
Although
cancer is generally considered to be a disease caused by genetic mutations or by environmental factors, such as exposure to ionizing
radiation, environmental carcinogens and so forth, microorganisms are implicated in approximately twenty percent of cases, with
one of the most well-known cases being the direct association of Helicobacter pylori and gastric cancer. In some cases,
these microorganisms can become integral parts of the tumor, aiding its propagation. In other cases, they serve an indirect role
by causing inflammation that drives proliferation of cells leading to the development of cancer.
Colorectal
tumors have been found to be enriched in the levels of a bacteria species known as Fusobacterium nucleatum or F. nucleatum.
The levels of this bacterium can be hundreds of times higher in tumors than in adjacent non-tumor tissues.
Figure
16. Levels of F. nucleatum are elevated in tumors compared to normal tissue.
Direct
observation of F. nucleatum in CRC tumor samples show that these bacteria appear to be integrally associated with tumor
cells and not simply passively attached to the tumor surface. Published studies have shown that F. nucleatum bind to tumors
via specific interactions between molecules on tumor cells and bacterial proteins.
Figure
17. F. nucleatum are a bacteria species that reside within colon cancer tumors.
Comparisons
of survival rates for CRC patients show that patients with high levels of F. nucleatum have a poor prognosis with less
than half surviving more than 20 months. In contrast, more than 60 percent of patients with low F. nucleatum levels survive
beyond 60 months.
Figure
18. High levels of F. nucleatum have been associated with a poor prognosis in patients with CRC tumors.
These
findings suggest that F. nucleatum is not only associated with colorectal tumors, but that it may also have a pathologic
role. Other studies have implicated F. nucleatum in stimulating CRC initiation and proliferation, protection from immune
attack by binding checkpoint inhibitors, and promoting resistance to chemotherapy. Combined, these results provide justification
for the development of therapies designed to eradicate F. nucleatum in CRC.
BiomX
believes that targeting F. nucleatum may provide clinical benefit in CRC through three mechanisms:
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Reductions
in the levels of the pathogenic bacteria, thereby lowering its contribution to the propagation
of CRC;
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Induction
of an inflammatory response due to lysis of the bacteria, which may lead to infiltration
of the tumor with immune cells; and
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Ability
to deliver gene payloads encoding immunostimulatory genes designed to specifically activate
the immune response to the tumor.
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Preclinical
proof of concept
A
panel of phage against F. nucleatum were obtained from clinically isolated samples. BiomX sequenced and characterized these
phage, some of which were lytic phage and others which were temperate phage, or phage that are capable of infecting bacteria without
causing immediate cell lysis or rupturing.
BiomX
tested the ability of the phage BiomX isolated to target F. nucleatum resident in colorectal tumors by first inducing the
formation of tumors in mice by implanting them with CT26 tumor cells. After twelve days of tumor formation, F. nucleatum
bacteria were added and shown to be present in the tumors. After another twenty-four hours, phage were administered by intravenous
infusion. BiomX showed by quantitative PCR that these phage were capable of infecting tumor-associated F. nucleatum.
Figure
19. Intravenous administration of phage able to target bacteria in tumors.
BiomX
believes that these results support its therapeutic hypothesis that phage can be used to target bacteria resident in tumors. BiomX
is currently using synthetic engineering to add genes encoding immunostimulatory payloads which BiomX believes will enhance the
ability of these phage to serve as immuno-oncology stimulatory agents capable of turning cold tumors into hot tumors.
Technology
platform
Target
and biomarker discovery and validation
BiomX
accesses microbiome sample collections from both patients and healthy people collected globally. BiomX uses its proprietary computational
platform to identify or corroborate potential bacterial targets associated with disease. Candidate targets undergo a robust process
of target validation that includes analysis of patient cohorts as well as in vitro, ex vivo and animal validation
models. BiomX then advances valid targets to phage discovery, where BiomX seeks a phage cocktail that can target and destroy these
disease-causing bacteria.
The
ongoing reduction in sequencing costs is enabling an exponential growth in sequence data that can be generated from the collection
of microorganisms in a microbiome, or metagenomic sequences. The microbiome is extremely varied between individuals and even between
samples from the same individual taken at multiple sites or at different times. BiomX’s target and biomarker discovery technologies
have been designed to specifically handle the vast amount of complex data that arises from analyses of patient microbiomes in
order to derive specific information. Analyses of the composition of the microbiome and discovering bacterial targets is a problem
of high dimensionality difficult to solve with traditional methods.
BiomX
has developed the ability to effectively mine metagenomic data from patient and healthy cohorts that BiomX collects itself, access
from public sources or license from third parties. BiomX is constantly improving its computational methods to address this vast
quantity of complex data, thereby increasing the amount of data that BiomX can process. BiomX has developed high-scale bioinformatic
analysis tools that can process data at the scale of petabytes at what BiomX believes to be a reasonable cost and in a reasonable
amount of time.
Classical
approaches to metagenomics analyses are based on using sequence data of bacterial strains that have been isolated and sequenced
to determine the abundance of individual strains and species of bacteria in a given sample. This approach has inherent limitations:
it requires that there is a reference sequence available for many strains of each bacterial species and does not refer to the
contributions of individual genes to the pathology. Sequences for novel or less abundant strains of bacteria are not available
in reference databases and thus these strains become invisible to the analysis.
BiomX’s
methods are able to perform higher resolution analyses that use all the available sequence data to produce disease-specific sequence
signatures. These signatures can then be used to map the importance of individual genes or pathways in the pathology.
BiomX’s
target and biomarker discovery platforms focus on two classes of data: microbiome composition and microbiome dynamics. Microbiome
composition refers to the characterization of the microbiome to determine the prevalence and relative abundance of strains and
genes between groups. Dynamics refers to the changes in microbiome composition, such as bacteria growth rate, and gene expression
that are induced upon various potential treatments. BiomX believes that identification of therapeutically relevant targets and
signatures requires both an understanding of the microbiome composition and changes that a given therapeutic is likely to induce.
To
date BiomX has focused on diseases for which strong associations with specific microbiome changes were available from pioneering
work of leading academic laboratories. For each of BiomX’s programs, however, BiomX has made significant investments in
acquiring clinical samples from diverse demographics and geographies to validate that the published findings are applicable to
a broad set of patients. To this end, BiomX has assembled collections of hundreds of samples from patients with IBD and PSC.
Microbiome based biomarkers – BiomX’s
XMarker platform
In
addition to using BiomX’s computational platform to discover and validate targets, BiomX has applied its signature identifying
technology towards identifying microbiome-derived biomarkers for disease diagnoses and as a means of developing diagnostic tests
to identify responders to non-responders to drugs. BiomX has established a collaboration with Janssen Research & Development,
LLC (“Janssen”) to use BiomX’s diagnostic platform, which BiomX calls XMarker, to identify a biomarker signature
to stratify responders and non-responders to a key Johnson & Johnson IBD therapeutic. BiomX is using BiomX’s computational
tools to analyze sequences in the stool microbiome of patients being treated by Janssen with the intent of identifying sequence
variations between responders and non-responders. BiomX believes that sequence variations identified through its XMarker platform
can be used to develop PCR-based or other molecular tests for screening patients and identifying those most likely to benefit
from treatment.
Figure
20. A reference free approach for biomarker discovery versus a classical reference based approach.
Phage
discovery and optimization
BiomX
has chosen to develop therapies based on phage because of their high specificity for specific bacterial strains; their strong
intrinsic safety profile in certain non-therapeutic applications, including in food or food contact surface categories; and the
potential to use genetic engineering to bring synthetic biology approaches to the development of novel therapies. Phage are self-replicating
which means that broad antibacterial activity can be obtained using low doses. This replication is also self-limiting –
once the target bacteria has been eliminated, the phage are unable to replicate and are thought to be eliminated from the body.
Phage
hunting
BiomX’s
phage discovery process begins with a process BiomX calls phage hunting in which BiomX extracts phage from a broad array of clinical
and environmental samples. BiomX isolates both lytic phage and temperate phage, which are capable of both lytic and lysogenic
replication, to increase the spectrum of potential phage. Although BiomX’s current topical and therapeutic product candidate
cocktails are all lytic phage BiomX has developed synthetic biology engineering tools that allow conversion of temperate phage
into a strictly lytic form.
Figure
21. Overview of BiomX’s phage platform.
BiomX
then screens phage for the ability to selectively and potently infect the target bacterial strains of interest. Phage that pass
BiomX’s initial screens undergo extensive in silico and laboratory characterization. BiomX sequences the genomes of all
phage candidates and rank them based on sequence diversity and lack of undesirable features, such as antibiotic resistance genes
or toxins. BiomX then analyzes the phage for bacterial strain specificity and their ability to cause bacterial cell lysis rather
than entering a lysogenic phase in which the phage become resident within the bacteria. Phage candidates are prioritized for various
characteristics that will be important during manufacturing such as ease of production and stability. BiomX carries out whole
genome analyses of bacteria that have developed resistance to specific phage in order to identify the bacterial receptors used
by each phage to infect their target bacteria.
Phage
engineering
BiomX’s
phage selection process usually begins with screening for naturally occurring phage, but it is not always possible to find phage
that exactly match the desired profile. If needed, BiomX modifies the genomes of its phage to create synthetic phage with properties
which are not found in nature, but that BiomX believes will be beneficial to BiomX’s use as therapeutic agents. Examples
of the types of genetic changes BiomX has introduced into phage include:
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Alteration
of their target specificity by modifying genes encoding phage tail fibers, which are
typically responsible for recognition of bacterial receptor proteins. This allows to
develop phage with expanded bacterial host range.
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Conversion
of temperate phage to lytic phage by disabling genes required for lysogeny.
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Addition
of payload genes that are intended to be delivered by the phage and lead to expression
of proteins with therapeutic or diagnostic potential.
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Changing
the target specificity of phage
BiomX
has applied two methods to change the target-recognition specificity of phage. One method is to introduce selective mutations
directly into the genes encoding the phage tail fibers, the portions of the phage typically responsible for binding to bacterial
cell receptors. The second method involves swapping the genes encoding tail fibers that specifically bind to one target receptor
with those of a phage that binds to another receptor. BiomX can also create phage with parts of two different types of tail fibers,
thus expanding the strains of bacteria that they can target.
Figure
22. A schematic example of a phage created to have multiple tail fibers.
A
published example from one of BiomX’s founders demonstrates the ability of tail fiber gene swapping to alter phage specificity.
In this experiment T7 phage that were not able to inhibit the growth of Klebsiella were engineered to contain the genes
for the tail fibers of K11 phage, a potent inhibitor of Klebsiella. After swapping the tail fiber genes, the synthetic
T7 phage assumed the species specificity of the K11 phage and became potent inhibitors of Klebsiella.
Conversion
of temperate to lytic phage
Naturally
occurring phage can exist either as lytic phage which replicate, creating many copies of themselves and quickly leading to bacterial
lysis, or as temperate phage which have the ability to enter into a lysogenic phase and become resident in the bacterial host
by integrating into the bacterial chromosome. BiomX can engineer phage that BiomX discovers to disable their ability to enter
the lysogenic state by inactivating key lysogenic genes such as regulatory genes or enzymes required for chromosomal integration.
For example, the deletion of a repressor required for lysogeny results in the creation of phage that, in contrast to their naturally
occurring precursors, are able to induce complete lysis of their target bacteria and suppress bacterial regrowth.
Figure
23. Deletion of a repressor converted a temperate phage (red) into a lytic phage (green) having similar ability to inhibit bacterial
growth as a naturally occurring lytic phage (blue).
Addition of payloads to phage
BiomX
has extensive experience modifying phage to carry and express gene payloads for a variety of proteins. BiomX has developed a luciferase-based
rapid test for K. pneumoniae in IBD based on phage used to create BX002. BiomX is now evaluating the introduction of various
immunostimulatory genes into phage in BiomX’s CRC product candidate. Through this process BiomX has gained proprietary
insights enabling BiomX to insert genes in specific areas of the phage genome to maximize expression and limit disruption of phage
function.
Cocktail
optimization
BiomX’s
topical and therapeutic product candidates are cocktails of phage which are chosen based on various characteristics including
target host range, ability to avoid resistance, stability, ease of manufacturing and biofilm penetration. BiomX employs various
techniques to prioritize and enrich for the selection of phage that target different receptors. BiomX conducts extensive computational
and laboratory tests to optimize the selection of phage components of BiomX’s cocktails to maximize their antibacterial
activity and the durability of their antibacterial effect.
BiomX’s
primary strategy to prevent or minimize the emergence of viable bacteria with mutations that allow them to overcome infection
by the candidate therapeutic is to always use a cocktail of multiple phage, including those which infect by different receptors,
in BiomX’s topical and therapeutic product candidates. BiomX hypothesizes that the ability of a bacterium to escape infection
by all members of the set of distinct phage in BiomX’s cocktail would require simultaneous mutations in multiple genes –
a very unlikely event. In practice, this is what BiomX has observed in its preclinical studies. Resistance can emerge when bacteria
are treated with single phage or suboptimal cocktails, but it is less likely when a cocktail of diverse phage are used.
Figure
24. Cocktails of diverse phage prevent emergence of resistant bacteria.
BiomX
and a CRO have jointly developed a manufacturing process that utilizes state of the art industrial methods for the manufacture
of BiomX’s product candidates. This cGMP compliant process is designed to be scalable to meet BiomX’s clinical study
needs, and to fulfill the requirements of regulators for human studies. BiomX currently operates a manufacturing model that combines
an in-house process development and manufacturing suite with outsourced third-party manufacturing services for the large scale
production of BiomX’s therapeutic phage cocktails for clinical use. As such, for BX001, BiomX has engaged one vendor to
provide purified active ingredients (bacteriophages) and another to provide formulation and fill-finish services of BiomX’s
product candidates for clinical testing. For BX002, BiomX has also engaged an additional third-party provider to supplement BiomX’s
in house process development activities. BiomX has selected these organizations based on their experience, capability, capacity
and regulatory status. Projects are managed by a specialist team of BiomX’s internal staff, which is designed to promote
compliance with the technical aspects and regulatory requirements of the manufacturing process.
BiomX
maintains services agreements with multiple manufacturers. These services agreements generally are short-term in nature and capable
of being extended or renewed. The production amounts identified in BiomX’s current services agreements are sufficient to
support BiomX’s current clinical study needs.
In
the third quarter of 2019, BiomX opened its own 550 square foot manufacturing facility at its headquarters in Ness Ziona, Israel.
This facility has been designed with the capacity to produce clinical quantities of BiomX’s product candidates required
for future early stage clinical development of BX002.
While
BiomX does not have a current need for commercial scale manufacturing capacity, at the appropriate time BiomX intends to evaluate
building large scale cGMP internal manufacturing capabilities, which may include expansion of its operations.
Intellectual
Property
BiomX
strives to protect the proprietary technology that BiomX believes is important to its business, including seeking and maintaining
patent protection in the United States and internationally for its product candidates and discovery platform. BiomX also relies
on trademarks, trade secrets, know-how, continuing technological innovation and in-licensing opportunities to develop and maintain
its proprietary position.
BiomX
seeks to obtain U.S. and international patent protection, and endeavors to promptly file patent applications for new commercially
valuable inventions. BiomX also relies on trade secrets and know-how to protect aspects of its business that are not amenable
to, or that BiomX does not consider appropriate for, patent protection. BiomX plans to continue to expand its intellectual property
estate by filing patent applications directed to formulations, related methods of treatment, methods of manufacture or identified
from BiomX’s ongoing development of its product candidates, as well as discovery based on BiomX’s proprietary product
platform. BiomX’s success will depend on its ability to obtain and maintain patent and other proprietary protection for
commercially important technology, inventions and know-how related to its business, defend and enforce any patents that BiomX
may obtain, preserve the confidentiality of its trade secrets and know-how and operate without infringing the valid and enforceable
patents and proprietary rights of third parties. The patent positions of life sciences companies like BiomX’s are generally
uncertain and involve complex legal, scientific and factual questions. In addition, the coverage claimed in a patent may be challenged
in courts after issuance. Moreover, many jurisdictions permit third parties to challenge issued patents in administrative proceedings,
which may result in further narrowing or even cancellation of patent claims. BiomX cannot guarantee that its pending patent applications,
or any patent applications that BiomX may in the future file or license from third parties, will result in the issuance of patents.
BiomX cannot predict whether the patent applications it is currently pursuing will issue as patents in any particular jurisdiction
or at all, whether the claims of any patent applications, should they issue, will cover its product candidates, or whether the
claims of any issued patents will provide sufficient protection from competitors or otherwise provide any competitive advantage.
BiomX cannot predict the scope of claims that may be allowed or enforced in its patents. In addition, the coverage claimed in
a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance.
Consequently, BiomX may not obtain or maintain adequate patent protection for any of its programs and product candidates.
Because
patent applications in the United States and certain other jurisdictions are maintained in secrecy for 18 months or potentially
even longer, and because publication of discoveries in the scientific or patent literature often lags behind actual discoveries
and patent application filings, BiomX cannot be certain of the priority of inventions covered by pending patent applications.
Accordingly, BiomX may not have been the first to invent the subject matter disclosed in some of its patent applications or the
first to file patent applications covering such subject matter, and BiomX may have to participate in interference proceedings
or derivation proceedings declared by the USPTO, to determine priority of invention. For more information regarding the risks
related to BiomX’s intellectual property, see “Risk Factors— Risks Related to BiomX’s Licensed and
Co-Owned Intellectual Property.”
BiomX’s
licensed and co-owned technology is focused on microbiome product discovery to develop phage therapies to target and destroy harmful
bacteria involved with chronic diseases. BiomX uses its licensed and proprietary platform technology to develop phage therapies
that incorporate both naturally occurring phage and novel engineered phage created using synthetic biology. These phage therapies
are directed to acne, IBD, PSC and CRC. BiomX then designs cocktails containing multiple phage (both naturally occurring and synthetic)
with complementary functions.
Patent
portfolio
BiomX’s
patent portfolio consists of both licensed and co-owned patent applications (that are also licensed). For some of these applications,
prosecution has not started and others are in the early stages of prosecution in the United States and in selected jurisdictions
outside of the United States. BiomX co-owns one U.S. provisional patent application with Keio University (“Keio”),
one U.S. provisional and one PCT application with Yeda Research and Development Co. Ltd. (“Yeda”), and one U.S. provisional
application and one PCT application with both Keio and Yeda. BiomX has an exclusive license from Yeda and Keio for these co-owned
applications. BiomX has exclusive licenses from Yeda, Keio, or the Massachusetts Institute of Technology (“MIT”) for
the rest of the patents and patent applications in its portfolio.
A
significant portion of BiomX’s portfolio is directed to its key product candidates, specifically: acne, IBD, and PSC, as
well as to BiomX’s bacterial target discovery and bacteriophage discovery technology platforms. Prosecution has yet to commence
for most the pending patent applications covering BiomX’s product candidates. Prosecution is a lengthy process, during which
the scope of the claims initially submitted for examination by the USPTO are often significantly narrowed by the time they issue,
if they issue at all. BiomX expects this to be the case with respect to its licensed and co-owned patent applications, described
briefly below.
Acne
BiomX
co-owns with Yeda one U.S. provisional and one PCT application containing claims directed to pharmaceutical compositions and formulations
comprising combinations of bacteriophage useful to treat acne, methods of use for these bacteriophage combinations, and methods
of identifying patients who will respond to these bacteriophage combinations. Any U.S. patents issuing from the pending application
covering BiomX’s lead bacteriophage combination in this program are expected to expire in 2038. Patent term adjustments
or patent term extensions could result in later expiration dates.
IBD
BiomX
co-owns with Keio and Yeda one U.S. provisional application and one PCT application containing claims directed to pharmaceutical
compositions comprising combinations of bacteriophage useful to treat IBD and other diseases of the gastrointestinal tract, methods
of use for these bacteriophage combinations, methods of identifying patients who will respond to these bacteriophage combinations,
and methods of treating IBD by targeting a bacterial strain discovered to cause or contribute to that disease. BiomX co-owns,
solely with Keio, one U.S. provisional application with similar claims.
BiomX also has an exclusive
license from Keio for one U.S. provisional application, one PCT application and five foreign patent applications (Australia, Canada,
China, Europe and Japan). These applications are directed to methods of use for these bacteriophage combinations, methods of identifying
patients who will respond to these bacteriophage combinations, and methods of treating IBD by targeting a bacterial strain discovered
to cause or contribute to that disease. Any U.S. patents issuing from the pending applications covering BiomX’s lead bacteriophage
combination in this program are expected to expire in 2037 or 2038. Patent term adjustments or patent term extensions could result
in later expiration dates.
PSC
BiomX
has an exclusive license to one U.S. non-provisional two U.S. provisional applications and two Japanese patent applications with
claims directed to pharmaceutical compositions comprising bacterial strains discovered to be beneficial in the treatment of PSC
and methods of using the same, and to methods of treating PSC by reducing the level of certain bacterial strains discovered to
contribute to PSC. Any U.S. patents issuing from the pending applications in this program are expected to expire in 2038 or 2039.
Patent term adjustments or patent term extensions could result in later expiration dates.
Technology
Platform
BiomX
is exclusively licensed to one U.S. issued patent, five U.S. non-provisional applications, one PCT application, and seven foreign
patent applications (Canada, China, Europe, and Israel). These licensed patent families include one issued U.S. Patent and multiple
pending patent applications, with claims directed to methods of analyzing the composition of the microbiome in a subject, polynucleotides
that are useful as transcription terminators in bacteria and methods of identifying the same, methods of producing recombinant
bacteriophage in yeast cells, recombinant bacteriophage with broader or altered host range than the parent strains from which
they are derived, and recombinant methods for increasing the lytic efficiency of a bacteriophage. The patents issuing from the
pending applications in the U.S. directed to BiomX’s platform are expected to expire between 2034 and 2038. Patent term
adjustments or patent term extensions could result in later expiration dates. For more information regarding the risks related
to BiomX’s intellectual property, see “Risk Factors—Risks Related to BiomX’s Licensed and Co-Owned
Intellectual Property.”
Patent
term
The
term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries
in which BiomX files, including the United States, the base term is 20 years from the filing date of the earliest-filed non-provisional patent
application from which the patent claims priority. The term of a U.S. patent can be lengthened by patent term adjustment, which
compensates the owner of the patent for administrative delays at the USPTO. In some cases, the term of a U.S. patent is shortened
by terminal disclaimer that reduces its term to that of an earlier-expiring patent. The term of a U.S. patent may be eligible
for patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman
Act, to account for at least some of the time the drug is under development and regulatory review after the patent is granted.
With regard to a drug for which FDA approval is the first permitted marketing of the active ingredient, the Hatch-Waxman Act allows
for extension of the term of one U.S. patent that includes at least one claim covering the composition of matter of such an FDA-approved drug,
an FDA-approved method of treatment using the drug and/or a method of manufacturing the FDA-approved drug.
The extended patent term cannot exceed the shorter of five years beyond the non-extended expiration of the patent or
fourteen years from the date of the FDA approval of the drug, and a patent cannot be extended more than once or for more than
a single product. During the period of extension, if granted, the scope of exclusivity is limited to the approved product for
approved uses. Some foreign jurisdictions, including Europe and Japan, have analogous patent term extension provisions, which
allow for extension of the term of a patent that covers a drug approved by the applicable foreign regulatory agency.
In
the future, if and when BiomX’s product candidates receive FDA approval, BiomX expects to apply, if appropriate, for patent
term extension on patents directed to those product candidates, their methods of use and/or methods of manufacture. However, there
is no guarantee that the applicable authorities, including the FDA in the United States, will agree with BiomX’s assessment
of whether such extensions should be granted, and if granted, the length of such extensions. For more information regarding the
risks related to BiomX’s intellectual property, see “Risk Factors—Risks Related to BiomX’s Licensed
and Co-Owned Intellectual Property.”
Trade
secrets and know-how
In
addition to patents, BiomX relies on trade secrets and know-how to develop and maintain its competitive position. BiomX
typically relies on trade secrets to protect aspects of its business that are not amenable to, or that BiomX does not consider
appropriate for, patent protection. BiomX protects trade secrets and know-how by establishing confidentiality agreements
and invention assignment agreements with BiomX’s employees, consultants, scientific advisors, contractors and collaborators.
These agreements provide that all confidential information developed or made known during the course of an individual or entities’
relationship with BiomX must be kept confidential during and after the relationship. These agreements also provide that all inventions
resulting from work performed for BiomX or relating to BiomX’s business and conceived or completed during the period of
employment or assignment, as applicable, shall be BiomX’s exclusive property. In addition, BiomX takes other appropriate
precautions, such as physical and technological security measures, to guard against misappropriation of its proprietary information
by third parties.
Although
BiomX takes steps to protect its proprietary information and trade secrets, including through contractual means with BiomX’s
employees and consultants, third parties may independently develop substantially equivalent proprietary information and techniques
or otherwise gain access to BiomX’s trade secrets or disclose BiomX’s technology. Thus, BiomX may not be able to meaningfully
protect its trade secrets. For more information regarding the risks related to BiomX’s intellectual property, see “Risk
Factors — Risks Related to BiomX’s Licensed and Co-Owned Intellectual Property.”
The
biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, strong competition and an emphasis
on proprietary products. While BiomX believes that its technology, knowledge and experience provide BiomX with competitive advantages,
BiomX faces substantial competition from many different sources, including larger pharmaceutical companies with more resources.
Specialty biotechnology companies, academic research institutions, governmental agencies, as well as public and private institutions
are also potential sources of competitive products and technologies. BiomX believes that the key competitive factors affecting
the success of any of its product candidates will include efficacy, safety profile, method of administration, cost, level of promotional
activity and intellectual property protection.
BiomX
is aware of a number biotechnology companies developing bacteriophage products to treat human diseases. To BiomX’s knowledge,
several biotechnology companies, as well as academic institutions, have discovery stage or clinical programs utilizing naturally
occurring phages or synthetic biology approaches. In addition, BiomX is aware of several investigational and marketed products
to treat the indications that BiomX is targeting with its product candidates, including, but not limited to:
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P.
acne: Adapalene, Epiduo, Zineryt, erythromycin and Acnecide
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Inflammatory
bowel disease: Humira, Stelara, Entyvio, Inflectra and Cimzia
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Primary
sclerosing cholangitis: Obeticholic acid (Intercept clinical candidate), GS-9674
(Gilead clinical candidate), BTT1023, (Acorda Therapeutics candidate) and PLN-74809 (Pliant
clinical candidate)
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Many
of BiomX’s competitors, either alone or with their strategic partners, have substantially greater financial, technical and
human resources than BiomX does and significantly greater experience in the discovery and development of product candidates, obtaining
FDA and other regulatory approvals of products and the commercialization of those products. Accordingly, BiomX’s competitors
may be more successful than BiomX may be in discovering product candidates, obtaining approval for such product candidates and
achieving widespread market acceptance. BiomX’s competitors’ products may be more effective, or more effectively marketed
and sold, than any product BiomX may commercialize and may render BiomX’s product candidates obsolete or non-competitive
before BiomX can recover the expenses of developing and commercializing any of BiomX’s product candidates. BiomX anticipates
that BiomX will face intense and increasing competition as new drugs enter the market and advanced technologies become available.
These
third parties compete with BiomX in recruiting and retaining qualified scientific, clinical, manufacturing sales and marketing
and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring
technologies complementary to, or necessary for, BiomX’s program.
In
addition, for any cosmetics products that BiomX introduces, BiomX will face intense competition from a broader range of cosmetics
companies with more resources than BiomX’s.
Sales
and Marketing
BiomX
intends to pursue the commercialization of its drug product candidates either by building internal sales and marketing capabilities
or through opportunistic collaborations with others if and when BiomX receives the requisite regulatory approvals.
BiomX
seeks to distribute BX001 and is working in collaboration with a leading multinational cosmetics company in conducting trials,
and does not plan to rely on its own sales and marketing capabilities, subject to negotiation and agreement of mutually acceptable terms
(as to which there can be no assurance). BiomX also may select an alternate method for distribution.
Material
Agreements
License
Agreements
Research
and License Agreement with Yeda Research and Development Company Limited
BiomX
entered into a Research and License Agreement with Yeda, the technology
transfer office of the Weizmann Institute of Science, dated as of June 22, 2015, as amended, pursuant to which BiomX received
an exclusive worldwide license to certain know-how and research information related to the development, testing, manufacture,
production and sale of microbiome-based therapeutic product candidates, including candidates specified in the agreement, which
are used in BiomX’s phage discovery platform, as well as patents, research and other rights to phage product candidates
resulting from the work of the consultants identified in the agreement and further research which BiomX funded.
In connection with this license, BiomX
is obligated to pay a non-refundable license fee of $10,000 per year. In addition, BiomX contributed an aggregate of approximately
$2.0 million to the research budget agreed upon in the license agreement. In addition, BiomX is required to pay tiered royalties
in the low single digits on net sales of products and diagnostic kits covered by the license agreement, subject to reductions
as described therein. The products and diagnostic kits covered by the license agreement include those directed to inflammatory
bowel disease, colorectal cancer, and any other indications that may be treated by phage-based therapies, as well as related technology
platforms. If BiomX sublicenses its rights under this agreement BiomX will be obligated to pay Yeda additional sublicense royalties
expressed as a percentage of the sublicensing receipts described in the agreement received ranging from the mid-teens to the mid-twenties.
BiomX is obligated pay filing and maintenance expenses in respect of patents licensed under this license agreements. In connection
with this license agreement, BiomX also issued an aggregate of 80,000 ordinary shares to Yeda. In the event of certain mergers
and acquisitions by BiomX, BiomX is obligated to pay Yeda an amount equivalent to 1% of the consideration received under such
transaction (the “exit fee”). Upon the closing of the Business Combination, the provisions of the Yeda license agreement
related to the exit fee will be amended so that, instead of the exit fee provided for in the prior sentence, in the event of any
merger or acquisition involving CHAC after the Business Combination, CHAC is obligated to pay Yeda a one-time payment as described
in the amendment which will not exceed 1% of the consideration received under such transaction.
Unless terminated earlier
by either party, the license granted will remain in effect in each country and for each product developed based on the license
until the later of the expiration of the last licensed patent (which is expected to be in 2039) in such country for such product,
and eleven years from the date of first commercial sale of such product in such country for such product. The agreement terminates
upon the later of the expiration of the last of the patents covered under the agreement, and the expiry of a continuous 15-year
period during which there has not been a first commercial sale of any product in any country. Yeda may also terminate the agreement
if BiomX fails to observe certain diligence and development requirements and milestones as described in the agreement. BiomX or
Yeda may terminate the agreement for the material uncured breach of the other party after a notice period, or the other party’s
winding up, bankruptcy, insolvency, dissolution or other similar discontinuation of business. Upon termination of the agreement,
other than due to the passage of time, BiomX is required to grant to Yeda a non-exclusive, irrevocable, perpetual, fully paid-up,
sublicensable, worldwide license in respect of BiomX’s rights in know-how and research results as described in this agreement,
provided that if Yeda subsequently grants a license to a third party that utilizes BiomX’s rights, BiomX is entitled to
share in the net proceeds actually received by Yeda arising out of that license, subject to a cap based on the development expenses
that BiomX incurs in connection with this agreement.
BiomX
consults with Yeda with respect to patent prosecution and maintenance decisions. Yeda is primarily responsible for prosecution
and maintenance with respect to Licensed Information and BiomX is responsible for prosecution and maintenance with respect to
Subsequent Results. BiomX and Yeda are both entitled to consultation rights. BiomX is responsible for costs associated with prosecution
and maintenance of all patents and applications.
BiomX
is entitled to enforce the patent rights under the license upon approval by Yeda. Yeda may elect to join the lawsuit, but BiomX
is responsible for all litigation-related expenses. Yeda reserves the right to bring its own actions if BiomX does not notify
Yeda of BiomX’s intent to enforce a right or bring an action after BiomX initially notified Yeda of the potential action.
Exclusive
Patent License Agreement with the Massachusetts Institute of Technology
On
April 25, 2017, BiomX entered into an Exclusive Patent License Agreement with MIT,
pursuant to which BiomX received an exclusive, royalty-bearing license to certain patents held by MIT covering methods to synthetically
engineer phage in the field of treating, preventing or diagnosing inflammatory bowel disease, cancer in humans, including colorectal
cancer, or certain other specified indications, to utilize patents held by MIT. One of the inventors of the patents has an equity
ownership in BiomX. Under this agreement, BiomX is required to expend minimum amounts on the research and development of the products
that require the licensed patents or are manufactured by a licensed process until the first commercial sale of any product covered
by this agreement. These minimum amounts start at $50,000 for the first year of the agreement term and increase up to $2.0 million
per year after the fourth year. BiomX is also required to meet certain clinical and development milestones over the course of
the agreement.
Under
the terms of the agreement, BiomX paid MIT an initial license fee of $25,000 and is obligated to pay certain license maintenance
fees of up to $250,000 in each subsequent year and following the commercial sale of licensed products. BiomX is also required
to make payments to MIT upon the satisfaction of development and commercialization milestones totaling up to $2.4 million in aggregate.
BiomX is also required to pay MIT tiered royalties on a percentage of annual net sales of licensed products in the low single
digits. In addition, BiomX is required to pay tiered royalties on a percentage of annual net sales of identified products ranging
between approximately one-half percent and in the low single digits. If BiomX sublicenses its rights under this agreement, BiomX
will be obligated to pay MIT sublicense royalties expressed as a percentage of sublicense income received as described in the
agreement, including milestone payments and other payments, ranging between the low teens and the low twenties. BiomX’s
payments to MIT are subject to reductions as set forth in the agreement.
Unless
earlier terminated, the agreement will continue until the expiration or abandonment of all issued patents or patent applications
with the licensed patent rights, which is expected to be in 2038. BiomX may also terminate the agreement at any time with 90 days
prior written notice and payment of all amounts due to MIT through the date of such termination. MIT may also terminate the agreement
if BiomX ceases to carry on BiomX’s business or if BiomX fails to pay any amounts due to MIT under the agreement. Either
party may terminate the agreement upon material breach by the other party that is uncured.
MIT
is responsible for prosecution and maintenance of the patents that fall under the patent rights. BiomX shares the costs of such
prosecution and maintenance.
BiomX
is entitled to enforce the patent rights under BiomX’s own control and at its own expense, unless MIT is legally required
to allow the action to be brought in its name. BiomX must consult with MIT before commencing any such action and cannot enter
into settlements, consent judgments, or other dispositions that would adversely affect the patent rights without prior written
consent of MIT. MIT reserves the right to bring its own enforcement actions if BiomX fails to do so within a reasonable time.
Exclusive
Patent License Agreement with Keio University and JSR Corporation for IBD
BiomX has entered into an Exclusive Patent
License Agreement with Keio, and JSR, on December 15, 2017, as amended, pursuant to which BiomX was granted an exclusive, royalty-bearing,
worldwide, perpetual sublicense by JSR to certain patent rights related to BiomX’s inflammatory bowel disease program. Specifically,
these patent rights relate to bacterial targets that have been observed to be related to inflammatory bowel disease and the phage
that were observed to eradicate these bacterial targets.
BiomX
paid JSR a license issue fee of $10,000 and has agreed to pay annual fees ranging from $15,000 to $25,000 in each subsequent year.
In addition to the license fees, BiomX has agreed to make payments upon the satisfaction of certain clinical and regulatory milestones
up to an aggregate of $3.2 million. BiomX is also required to pay tiered royalties expressed as a percentage of annual net sales
of products developed under the agreement in the low single digits. If BiomX sublicenses BiomX’s rights under this agreement,
BiomX will be obligated to pay sublicense royalties expressed as a percentage of sublicense income received, including any license
signing fee, license maintenance fee, distribution or joint marketing fee and milestone payments, ranging in the high single digits
to the low teens. BiomX’s payments under this agreement are subject to reductions as set forth therein.
Unless
earlier terminated, this agreement will expire on the later of the date on which all issued patents and filed patent applications
have expired (which is expected to be in 2039), or been abandoned, withdrawn, rejected, revoked or invalidated, and five years
from the date of first commercial sale of a product developed the agreement in any country or, if later, when the product ceases
to be covered by a valid claim in the United States, European Union or Japan. The counterparties may terminate this agreement
if BiomX fails to pay the amounts due under this agreement, or upon BiomX’s winding up, bankruptcy, insolvency, dissolution
or other similar discontinuation of business, or if BiomX breaches the material terms of this agreement and such breach is uncured.
BiomX may terminate this agreement at any time upon three months’ advance written notice to JSR.
BiomX
and other joint owners are responsible for maintenance and prosecution of patents that fall under Joint Patent Rights. JSR is
entitled to the opportunity to advise and approve decisions that would have a material adverse impact on the scope of the claims.
JSR is responsible for patents that fall under Patent Rights and BiomX is entitled to advise with respect to patent counsel, scope
of claims, and other matters. BiomX is entitled to bring enforcement actions (in BiomX’s name alone and at BiomX’s
own expense). BiomX is required to obtain JSR’s prior written consent for each action BiomX brings with respect to the Patent
Rights only.
Exclusive
Patent License Agreement with Keio University and JSR Corporation for PSC
BiomX
has entered into an Exclusive Patent License Agreement with Keio and JSR on April 22, 2019, pursuant to which BiomX was granted
an exclusive, royalty-bearing, worldwide, perpetual sublicense by JSR to certain patent rights related to BiomX’s PSC program.
Specifically, these patent rights relate to bacterial targets that have been observed to be related to PSC and the phage that
were observed to eradicate these bacterial targets.
BiomX
paid JSR a license issue fee of $20,000 and has agreed to pay annual fees ranging from $15,000 to $25,000 in each subsequent year.
In addition to the license fees, BiomX has agreed to make payments upon the satisfaction of certain clinical and regulatory milestones
up to an aggregate of $3.2 million. BiomX is also required to pay tiered royalties expressed as a percentage of annual net sales
of products developed under the agreement in the low single digits. If BiomX sublicenses BiomX’s rights under this agreement,
BiomX will be obligated to pay sublicense royalties expressed as a percentage of sublicense income received, including any license
signing fee, license maintenance fee, distribution or joint marketing fee and milestone payments, ranging in the high single digits
to the low teens. BiomX’s payments under this agreement are subject to reductions as set forth therein.
Unless
earlier terminated, this agreement will expire on the later of the date on which all issued patents and filed patent applications
have expired (which is expected to be in 2039), or been abandoned, withdrawn, rejected, revoked or invalidated, and five years
from the date of first commercial sale of a product developed the agreement in any country or, if later, when the product ceases
to be covered by a valid claim in the United States, European Union or Japan. The counterparties may terminate this agreement
if BiomX fails to pay the amounts due under this agreement, or upon BiomX’s winding up, bankruptcy, insolvency, dissolution
or other similar discontinuation of business, or if BiomX breaches the material terms of this agreement and such breach is uncured.
BiomX may terminate this agreement at any time upon three months’ advance written notice to JSR.
BiomX
and other joint owners are responsible for maintenance and prosecution of patents that fall under Joint Patent Rights. JSR is
entitled to the opportunity to advise and approve decisions that would have a material adverse impact on the scope of the claims.
JSR is responsible for patents that fall under Patent Rights and BiomX is entitled to advise with respect to patent counsel, scope
of claims, and other matters. BiomX is entitled to bring enforcement actions (in BiomX’s name alone and at BiomX’s
own expense). BiomX is required to obtain JSR’s prior written consent for each action BiomX brings with respect to the Patent
Rights only.
Acquisition
Agreement
RondinX
Acquisition
In
November 2017, BiomX entered into a share purchase agreement to acquire all of the outstanding share capital of RondinX Ltd.,
a company organized under the laws of Israel (“RondinX”). Under this agreement, BiomX issued to the shareholders of
RondinX an aggregate of 250,023 Series A-1 preferred shares upon the closing of the acquisition. In addition, BiomX issued to
warrantholders of RondinX warrants to purchase an aggregate of 4,380 Series A-1 preferred shares, which are exercisable for no
additional consideration, as well as additional cash consideration.
In
addition, BiomX is required to issue up to an additional 234,834 ordinary shares to the former securityholders of RondinX upon
the achievement of certain milestones, including clinical, developmental, regulatory, commercial or strategic milestones relating
to product candidates for treatment of PSC or entry into qualifying collaboration agreements with certain third parties. Furthermore,
upon the achievement of such milestones, BiomX will be required to make payments of contingent consideration of up to $32 million
in the aggregate. Such contingent consideration may be made in cash, or in the most senior class of BiomX’s shares authorized
or outstanding as of the time the payment is due, or a combination of both. If BiomX issues shares for the payment of such contingent
consideration, these shares will be issued based on the lowest price per share paid by any holder of such shares. In the event
that any of BiomX’s shares are traded on a public market, then the price per share calculated as part of such payment will
be calculated as follows: (i) if the securities are then traded on a national securities exchange or the Nasdaq Stock Market (or
similar national quotation system), then the value of the securities shall be deemed to be the average of the closing prices of
the securities on such exchange or system over the thirty (30) trading-day period ending five (5) trading days prior to the distribution;
or (ii) if the securities are actively traded over-the-counter, then the value of the securities shall be deemed to be the average
of the closing bid prices of the securities over the thirty (30) trading-day period ending five (5) trading days prior to the
distribution.
Employees
As of
September 1, 2019, BiomX has 66 full-time employees and consultants and 13 part time employees. Twenty-seven of BiomX’s
employees have Ph.D. or M.D. degrees and 71 of BiomX’s employees are currently engaged in research and preclinical development
activities. None of BiomX’s employees is represented by labor unions or covered by collective bargaining agreements. BiomX
considers its relationship with its employees to be very strong.
Facilities
BiomX’s
corporate headquarters are located in Ness Ziona, Israel, where BiomX currently leases 10,760 square feet of laboratory and office
space. The lease expires in 2022, subject to an option to extend for an additional five years starting on July 14, 2022. In the
third quarter of 2019, BiomX opened its own 550 square foot manufacturing facility at its headquarters in Ness Ziona, Israel.
This facility has been designed with the capacity to produce clinical quantities of BiomX’s product candidates required
for future early stage clinical development of BX002 and BX003.
Legal
Proceedings
As
of the date of this proxy statement, BiomX is not subject to any material legal proceedings.
GOVERNMENT
REGULATION
Government
authorities in the United States and other countries regulate, among other things, the research, development, testing, manufacture,
quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring
and reporting, marketing and export and import of drug and biological products. Generally, before a new drug or biologic can be
marketed, considerable data demonstrating its quality, safety, efficacy, purity, and/or potency must be obtained, organized into
a format specific for each regulatory authority, submitted for review and approved by the regulatory authority where the product
is intended to be marketed. In addition, in certain countries, cosmetics are subject to a specific regulatory framework.
U.S.
Biological Product Development Process
In
the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (the “FDCA”) and its implementing
regulations under the FDCA, the Public Health Service Act (the “PHSA”) and their implementing regulations. Both drugs
and biologics are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory
approvals and the subsequent compliance with appropriate federal, state and local statutes and regulations requires the expenditure
of substantial time and financial resources. Failure to comply with applicable U.S. requirements at any time during the product
development, approval, or post-marketing process may subject an applicant to administrative or judicial sanctions. These sanctions
could include, among other actions, the FDA’s refusal to approve pending applications, withdrawal of an approval or license
revocation, a clinical hold, untitled or warning letters, product recalls or market withdrawals, product seizures, total or partial
suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement and
civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.
Certain
of our current product candidates and future product candidates must be approved by the FDA through a Biologics License Application
(“BLA”) process before they may be legally marketed in the United States. The process generally involves the following:
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Completion
of extensive preclinical studies in accordance with applicable regulations, including
studies conducted in accordance with good laboratory practice (“GLP”) requirements;
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Submission
to the FDA of an Investigational New Drug (“IND”) application, which must
become effective before human clinical trials may begin;
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Approval
by an institutional review board (“IRB”) at each clinical trial site before
each trial may be initiated;
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Performance
of adequate and well-controlled human clinical trials in accordance with applicable IND
regulations, good clinical practice (“GCP”) requirements and other clinical
trial-related regulations to establish the safety and efficacy of the investigational
product for each proposed indication;
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Submission
to the FDA of a BLA;
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A
determination by the FDA within 60 days of its receipt of a BLA to accept the filing
for review;
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Satisfactory
completion of an FDA pre-approval inspection of the manufacturing facility or facilities
where the biologic will be produced to assess compliance with current good manufacturing
practice (“cGMP”) requirements to assure that the facilities, methods and
controls are adequate to preserve the biologic’s identity, strength, quality and
purity;
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Potential
FDA audit of the clinical trial sites that generated the data in support of the BLA;
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Payment
of user fees for FDA review of the BLA (unless a fee waiver applies); and
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FDA
review and approval of the BLA, including consideration of the views of any FDA advisory
committee, prior to any commercial marketing or sale of the biologic in the United States.
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The
preclinical and clinical testing and approval process requires substantial time, effort and financial resources, and we cannot
be certain that any approvals for our product candidates subject to this process will be granted on a timely basis, or at all.
The
strategies, nature, and technologies associated with bacteriophage products are different from those of conventional biological
products. From the regulatory requirements established in order to ensure the safety, efficacy and quality of bacteriophage preparations,
there are several matters to consider during the development, manufacturing, characterization, preclinical study and clinical
trials of bacteriophage, including:
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Preparation
and design of bacteriophage cocktails (phage mixes) with individual phage characterization
to ensure that they are strictly lytic and devoid of any antibiotic resistance or virulent
sequences; wild-type phage versus genetically engineered phage;
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Proof
of concept in development of bacteriophage products in the treatment of chronic diseases;
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Ability
to deliver an adequate dose of bacteriophage formulation to target bacteria;
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Relevant
animal models in preclinical studies; and
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Clinical
safety and effectiveness on individuals that carry the bacterial strain.
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Preclinical
Studies and IND
Preclinical
studies include laboratory evaluation of product chemistry and formulation, as well as in vitro and animal studies to establish
a rationale for therapeutic use and in some cases to assess the potential for adverse events. The conduct of preclinical studies
is subject to federal regulations and requirements, including GLP regulations for safety/toxicology studies. An IND sponsor must
submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical
data or literature and plans for clinical trials, among other things, to the FDA as part of an IND. An IND is a request for authorization
from the FDA to administer an investigational product to humans, and, must become effective before human clinical trials may begin.
Some long-term preclinical testing may continue after the IND is submitted. An IND automatically becomes effective 30 days after
receipt by the FDA, unless before that time, the FDA raises concerns or questions related to one or more proposed clinical trials
and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before
the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.
Clinical
Trials
Clinical
trials involve the administration of the biological product candidate to healthy volunteers or disease-affected patients under
the supervision of qualified investigators, generally physicians not employed by, or under, the trial sponsor’s control.
Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures,
subject selection and exclusion criteria, and the parameters to be used to monitor subject safety and efficacy, including stopping
rules that assure a clinical trial will be stopped if certain adverse events should occur. Each protocol and any amendments to
the protocol must be submitted to the FDA as part of the IND. Clinical trials must be conducted and monitored in accordance with
the FDA’s regulations comprising the GCP requirements, including the requirement that all research subjects provide informed
consent. Further, each clinical trial must be reviewed and approved by an IRB at or servicing each institution at which the clinical
trial will be conducted. An IRB is charged with protecting the welfare and rights of study participants and considers such items
as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated
benefits. The IRB also approves the form and content of the informed consent that must be signed by each clinical trial subject
or his or her legal representative and must monitor the clinical trial until completed. There are also requirements governing
the reporting of ongoing clinical trials and completed clinical trial results to public registries. Information about certain
clinical trials, including clinical trial results, must be submitted within specific timeframes for publication on the www.clinicaltrials.gov
website.
Clinical
trials generally are conducted in three sequential phases, known as Phase 1, Phase 2 and Phase 3, and may overlap.
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Phase
1 clinical trials generally involve a small number of healthy volunteers or disease-affected
patients who are initially exposed to a single dose and then multiple doses of the product
candidate. The primary purpose of these clinical trials is to assess the metabolism,
pharmacologic action, side effect tolerability and safety of the product candidate.
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Phase
2 clinical trials generally involve studies in disease-affected patients to evaluate
proof of concept and/or determine the dosing regimen(s) for subsequent investigations.
At the same time, safety and sometimes further pharmacokinetic and pharmacodynamic information
is collected, possible adverse effects and safety risks are identified and a preliminary
evaluation of efficacy is conducted.
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Phase
3 clinical trials generally involve a large number of patients at multiple sites and
are designed to provide the data necessary to demonstrate the effectiveness of the product
for its intended use, its safety in use and to establish the overall benefit/risk relationship
of the product and provide an adequate basis for labeling for new drugs.
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Post-approval
trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These trials are
conducted to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances,
the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of a BLA.
Progress
reports detailing the results of the clinical trials, among other information, must be submitted at least annually to the FDA
and written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected suspected adverse
events, findings from other studies or animal or in vitro testing that suggest a significant risk for human subjects and
any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator
brochure.
It
is possible for Phase 1, Phase 2, Phase 3 and other types of clinical trials not to be completed successfully within a specified
period, if at all. The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including
a finding that the patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval
of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements
or if the biologic has been associated with unexpected serious harm to patients. Additionally, some clinical trials are overseen
by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board
or committee. This group provides authorization for whether a trial may move forward at designated check points based on access
to certain data from the trial.
Concurrent
with clinical trials, companies may complete additional animal studies and also must develop additional information about the
chemistry and physical characteristics of the biologic as well as finalize a process for manufacturing the product in commercial
quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches
of the product and, among other things, companies must develop methods for testing the identity, strength, quality and purity
of the final product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted
to demonstrate that the product candidates do not undergo unacceptable deterioration over their shelf life.
FDA
Review Process
Following
completion of the clinical trials, data are analyzed to assess whether the investigational product is safe and effective for the
proposed indicated use or uses, and also meets the regulatory requirements for potency and purity. The results of preclinical
studies and clinical trials are then submitted to the FDA as part of a BLA, along with proposed labeling, chemistry and manufacturing
information to ensure product quality and other relevant data. The BLA is a request for approval to market the biologic for one
or more specified indications and must contain proof of safety, purity and potency. The application may include both negative
and ambiguous results of preclinical studies and clinical trials, as well as positive findings. Data may come from company-sponsored
clinical trials intended to test the safety and efficacy of a product’s use or from a number of alternative sources, including
studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity
to establish the safety and efficacy in the intended indication, purity and potency of the investigational product to the satisfaction
of the FDA. FDA approval of a BLA must be obtained before a biologic may be marketed in the United States. Under the Prescription
Drug User Fee Act, or PDUFA, as amended, each BLA must be accompanied by a user fee. The FDA adjusts the PDUFA user fees on an
annual basis. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for
the first application filed by a small business. Additionally, no user fees are assessed on BLAs for products designated as orphan
drugs, unless the product also includes a non-orphan indication.
The
FDA reviews all submitted BLAs before it accepts them for filing and may request additional information rather than accept the
BLA for filing. The FDA must make a decision on accepting a BLA for filing within 60 days of receipt, and such a decision could
include a refusal to file by the FDA. Once the submission is accepted for filing, the FDA begins an in-depth review of the BLA.
Under the goals and policies agreed to by the FDA under PDUFA, the FDA has 10 months, from the filing date, in which to complete
its initial review of an original BLA and respond to the applicant, and six months from the filing date of an original BLA designated
for priority review. The FDA does not always meet its PDUFA goal dates for standard and priority BLAs, and the review process
is often extended by FDA requests for additional information or clarification.
Before
approving a BLA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new product to determine
whether they comply with cGMP requirements. The FDA will not approve the product unless it determines that the manufacturing processes
and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required
specifications. The FDA also may audit data from clinical trials to ensure compliance with GCP requirements. Additionally, the
FDA may refer applications for novel products or products which present difficult questions of safety or efficacy to an advisory
committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether
the application should be approved and under what conditions, if any. The FDA is not bound by recommendations of an advisory committee,
but it considers such recommendations when making decisions on approval. The FDA likely will reanalyze the clinical trial data,
which could result in extensive discussions between the FDA and the applicant during the review process.
After
the FDA evaluates a BLA, it will issue an approval letter (“Complete Response Letter”). An approval letter authorizes
commercial marketing of the biologic with specific prescribing information for specific indications. A Complete Response Letter
indicates that the review cycle of the application is complete and the application will not be approved in its present form. A
Complete Response Letter usually describes all the specific deficiencies in the BLA identified by the FDA. The Complete Response
Letter may require additional clinical data and/or other significant and time-consuming requirements related to clinical trials,
preclinical studies or manufacturing. If a Complete Response Letter is issued, the applicant may either resubmit the BLA, addressing
all the deficiencies identified in the letter, or withdraw the application. Even if such data and information are submitted, the
FDA may decide that the BLA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive
and the FDA may interpret data differently than the sponsor’s interpretation of the same data.
Orphan
Drug Designation
Under
the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or
condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more
than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and
making the product available in the United States for this type of disease or condition will be recovered from sales of the product.
Orphan drug designation for a biologic must be requested before submitting a BLA. After the FDA grants orphan drug designation,
the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation
does not convey any advantage in or shorten the duration of the regulatory review and approval process.
Orphan
drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs,
tax advantages and user-fee waivers. If a product that has orphan designation subsequently receives the first FDA approval for
the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means that
the FDA may not approve any other applications to market the same drug for the same indication for seven years from the date of
such approval, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity
by means of greater effectiveness, greater safety or providing a major contribution to patient care, or in instances of drug supply
issues. Competitors, however, may receive approval of either a different product for the same indication or the same product for
a different indication but that could be used off-label in the orphan indication. Orphan drug exclusivity also could block the
approval of one of our products for seven years if a competitor obtains approval before we do for the same product, as defined
by the FDA, for the same indication we are seeking approval, or if our product is determined to be contained within the scope
of the competitor’s product for the same indication or disease. If one of our products designated as an orphan drug receives
marketing approval for an indication broader than that which is designated, it may not be entitled to orphan drug exclusivity.
Orphan drug status in the European Union has similar, but not identical, requirements and benefits.
Expedited
Development and Review Programs
The
FDA has a fast track program that is intended to expedite or facilitate the process for reviewing new drugs and biologics that
meet certain criteria. Specifically, new drugs and biologics are eligible for fast track designation if they are intended to treat
a serious or life threatening condition and preclinical or clinical data demonstrate the potential to address unmet medical needs
for the condition. Fast track designation applies to both the product and the specific indication for which it is being studied.
The sponsor of a biologic can request the FDA to designate the product for fast track status any time before receiving BLA approval,
but ideally no later than the pre-BLA meeting. Any product submitted to the FDA for marketing, including under a fast track program,
may be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated
approval. A product is eligible for priority review if it treats a serious or life-threatening condition and, if approved, would
provide a significant improvement in safety and effectiveness compared to available therapies. The FDA will attempt to direct
additional resources to the evaluation of an application for a new drug or biologic designated for priority review in an effort
to facilitate the review.
A
product may also be eligible for accelerated approval if it treats a serious or life-threatening condition and generally provides
a meaningful advantage over available therapies. In addition, it must demonstrate an effect on a surrogate endpoint that is reasonably
likely to predict clinical benefit or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality
(“IMM”) that is reasonably likely to predict an effect on IMM or other clinical benefit. As a condition of approval, the FDA may
require that a sponsor of a drug or biologic receiving accelerated approval perform adequate and well-controlled post-marketing
clinical trials. If the FDA concludes that a drug or biologic shown to be effective can be safely used only if distribution or
use is restricted, it will require such post-marketing restrictions, as it deems necessary to assure safe use of the product.
If the FDA determines that the conditions of approval are not being met, the FDA can withdraw its accelerated approval for such
drug or biologic.
Additionally,
a drug or biologic may be eligible for designation as a breakthrough therapy if the product is intended, alone or in combination
with one or more other drugs or biologics, to treat a serious or life-threatening condition and preliminary clinical evidence
indicates that the product may demonstrate substantial improvement over currently approved therapies on one or more clinically
significant endpoints. The benefits of breakthrough therapy designation include the same benefits as fast track designation, plus
intensive guidance from the FDA to ensure an efficient drug development program.
Even
if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions
for qualification or the time period for FDA review or approval may not be shortened. Furthermore, fast track designation, priority
review, accelerated approval and breakthrough therapy designation do not change the standards for approval, but may expedite the
development or approval process.
Pediatric
Information
Under
the Pediatric Research Equity Act (“PREA”), a BLA or supplement to a BLA must contain data to assess the safety and
efficacy of the biologic for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration
for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of pediatric
data or full or partial waivers. A sponsor who is planning to submit a marketing application for a drug that includes a new active
ingredient, new indication, new dosage form, new dosing regimen or new route of administration must submit an initial Pediatric
Study Plan (“PSP”) within 60 days of an end-of-Phase 2 meeting or, if there is no such meeting, as early as practicable before
the initiation of the Phase 3 or Phase 2/3 study. The initial PSP must include an outline of the pediatric study or studies that
the sponsor plans to conduct, including study objectives and design, age groups, relevant endpoints and statistical approach,
or a justification for not including such detailed information, and any request for a deferral of pediatric assessments or a full
or partial waiver of the requirement to provide data from pediatric studies along with supporting information. The FDA and the
sponsor must reach an agreement on the PSP. A sponsor can submit amendments to an agreed-upon initial PSP at any time if changes
to the pediatric plan need to be considered based on data collected from preclinical studies, early phase clinical trials and/or
other clinical development programs.
Post-marketing
Requirements
Following
approval of a new product, the manufacturer and the approved product are subject to continuing regulation by the FDA, including,
among other things, monitoring and record-keeping activities, reporting of adverse experiences, complying with promotion and advertising
requirements, which include restrictions on promoting products for unapproved uses or patient populations (known as “off-label
use”) and limitations on industry-sponsored scientific and educational activities. Although physicians may prescribe legally
available products for off-label uses, manufacturers may not market or promote such uses. Prescription drug and biologic promotional
materials must be submitted to the FDA in conjunction with their first use. Further, if there are any modifications to the biologic,
including changes in indications, labeling or manufacturing processes or facilities, the applicant may be required to submit and
obtain FDA approval of a new BLA or BLA supplement, which may require the development of additional data or preclinical studies
and clinical trials.
The
FDA may also place other conditions on approvals including the requirement for a Risk Evaluation and Mitigation Strategy (“REMS”)
to assure the safe use of the product. If the FDA concludes a REMS is needed, the sponsor of the BLA must submit a proposed REMS.
The FDA will not approve the BLA without an approved REMS, if required. A REMS could include medication guides, physician communication
plans or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization
tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or
dispensing of products. Newly discovered or developed safety or effectiveness data may require changes to a product’s approved
labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk
management measures, including a REMS or the conduct of post-marketing studies to assess a newly discovered safety issue. Product
approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following initial marketing.
FDA regulations require that products
be manufactured in specific approved facilities and in accordance with cGMP regulations. While BiomX opened its own manufacturing
facility in the third quarter of 2019, it has historically relied, and expects to continue to rely, on third parties for the production
of certain clinical and commercial quantities of its products in accordance with cGMP regulations. BiomX and these manufacturers
must comply with cGMP regulations that require, among other things, quality control and quality assurance, the maintenance of
records and documentation and the obligation to investigate and correct any deviations from cGMP. Manufacturers and other entities
involved in the manufacture and distribution of approved drugs or biologics are required to register their establishments with
the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies
for compliance with cGMP requirements and other laws. Accordingly, manufacturers must continue to expend time, money and effort
in the area of production and quality control to maintain cGMP compliance. The discovery of violative conditions, including failure
to conform to cGMP regulations, could result in enforcement actions, and the discovery of problems with a product after approval
may result in restrictions on a product, manufacturer or holder of an approved BLA, including recall.
U.S.
Patent Term Restoration and Marketing Exclusivity
Depending
upon the timing, duration and specifics of FDA approval of our product candidates and any future product candidates, some of our
U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act
of 1984, commonly referred to as the Hatch Waxman Amendments. The Hatch Waxman Amendments permit restoration of the patent term
of up to five years as compensation for patent term lost during product development and FDA regulatory review process. Patent
term restoration, however, cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval
date. The patent term restoration period is generally one half the time between the effective date of an IND and the submission
date of a BLA plus the time between the submission date of a BLA and the approval of that application, except that the review
period is reduced by any time during which the applicant failed to exercise due diligence. Only one patent applicable to an approved
biologic is eligible for the extension and the application for the extension must be submitted prior to the expiration of the
patent.
The
USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the
future, we may apply for restoration of patent term for our currently owned or licensed patents to add patent life beyond its
current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the
relevant BLA.
An
abbreviated approval pathway for biological products shown to be biosimilar to, or interchangeable with, an FDA licensed reference
biological product was created by the Biologics Price Competition and Innovation Act of 2009 (the “BPCI Act”). This
amendment to the PHSA, in part, attempts to minimize duplicative testing. Biosimilarity, which requires that the biological product
be highly similar to the reference product notwithstanding minor differences in clinically inactive components and that there
be no clinically meaningful differences between the product and the reference product in terms of safety, purity and potency,
can be shown through analytical studies, animal studies and a clinical trial or trials.
Interchangeability
requires that a biological product be biosimilar to the reference product and that the product can be expected to produce the
same clinical results as the reference product in any given patient and, for products administered multiple times to an individual,
that the product and the reference product may be alternated or switched after one has been previously administered without increasing
safety risks or risks of diminished efficacy relative to exclusive use of the reference biological product without such alternation
or switch.
A
reference biological product is granted 12 years of data exclusivity from the time of first licensure of the product, and the
FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until
four years after the date of first licensure of the reference product. “First licensure” typically means the initial
date the particular product at issue was licensed in the United States. Date of first licensure does not include the date of licensure
of (and a new period of exclusivity is not available for) a biological product if the licensure is for a supplement for the biological
product or for a subsequent application by the same sponsor or manufacturer of the biological product (or licensor, predecessor
in interest, or other related entity) for a change (not including a modification to the structure of the biological product) that
results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength,
or for a modification to the structure of the biological product that does not result in a change in safety, purity, or potency.
Pediatric
exclusivity is another type of regulatory market exclusivity in the United States, available under the Best Phamraceuticals for
Children Act by way of its application to biologics through the Biologics Price Competition and Innovation Act. Pediatric exclusivity,
if granted, adds six months to existing regulatory exclusivity periods, which must be in place in order for pediatric exclusivity
to apply. This six month exclusivity may be granted based on the voluntary completion of a pediatric trial in accordance with
an FDA issued “Written Request” for such a trial, although FDA may issue such a Written Request at the request of
the sponsor.
Companion
Diagnostics
BiomX may employ companion diagnostics to
help it to more accurately identify patients within a particular bacterial strain, both during its clinical trials and in connection
with the commercialization of its product candidates that it is developing or may in the future develop. Companion diagnostics
can identify patients who are most likely to benefit from a particular therapeutic product; identify patients likely to be at increased
risk for serious side effects as a result of treatment with a particular therapeutic product; or monitor response to treatment
with a particular therapeutic product for the purpose of adjusting treatment to achieve improved safety or effectiveness. Companion
diagnostics are regulated as medical devices by the FDA and, as such, require either clearance or approval prior to commercialization.
The level of risk combined with available controls to mitigate risk determines whether a companion diagnostic device requires Premarket
Approval Application (“PMA”) approval or is cleared through the 510(k) premarket notification process. For a novel
therapeutic product for which a companion diagnostic device is essential for the safe and effective use of the product, the companion
diagnostic device should be developed and approved or 510(k)-cleared contemporaneously with the therapeutic. The use of the companion
diagnostic device will be stipulated in the labeling of the therapeutic product.
Government
Regulation Outside of the United States
In
addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing,
among other things, clinical trials of drug products as well as the approval, manufacture and distribution of our product candidates.
Because biologically sourced raw materials are subject to unique contamination risks, their use may be restricted in some countries.
Whether or not we obtain FDA approval for a product candidate, we must obtain the requisite approvals from regulatory authorities
in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. If we fail to
comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal
of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
Clinical
Trials
Certain
countries outside of the United States have a regulatory process similar to the U.S process that requires the submission of a
clinical trial application much like the IND prior to the commencement of human clinical trials. In the European Union, for example,
a clinical trial application (“CTA”) must be submitted for each clinical trial to the national health authority and
an independent ethics committee in each country in which the trial is to be conducted, much like the FDA and an IRB, respectively.
Clinical trial application must be accompanied by an investigational medicinal product dossier with supporting information prescribed
by the Clinical Trials Directive (and corresponding national laws of the member states) and further detailed in applicable guidance
documents. Once the CTA is approved in accordance with a country’s requirements, the clinical trial may proceed. A similar
process to the one described for the European Union is required in Israel for initiation of clinical trials. The requirements
and process governing the conduct of clinical trials vary from country to country. In all cases, the clinical trials must be conducted
in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration
of Helsinki.
Approval
Process
In
order to market our products, we must obtain a marketing approval for each product and comply with numerous and varying regulatory
requirements. The approval procedure varies among countries and can involve additional testing in comparison to the testing carried
out for the U.S. approval. The time required to obtain approval in foreign countries may differ substantially from that required
to obtain FDA approval. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries.
The regulatory approval process outside the United States generally is subject to all of the same risks associated with obtaining
FDA approval. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement
before the product can be approved for sale in that country.
To obtain marketing approval of a medicinal
product under the European Union regulatory system, an applicant must submit a marketing authorization application (“MAA”),
under either a centralized or a decentralized procedure. The decentralized procedure is based on a collaboration among the member
states selected by the applicant. In essence, the applicant chooses a ‘lead’ member state that will carry out the scientific
assessment of the MAA and review the product information. The other member states must recognize the outcome of such assessment
and review except in case of a “serious potential risk to public health.” The decentralized procedure results in the
grant of a national marketing authorization in each selected country. That procedure is available for all medicinal products unless
they fall into the mandatory scope of the centralized procedure. In practice, it is used for OTC, not highly innovative products,
generic products and, increasingly, for biosimilars.
The centralized procedure provides for the
grant of a single marketing authorization by the European Commission that is valid for all European Union member states. The centralized
procedure is compulsory for certain medicinal products, including for medicinal products produced by certain biotechnological processes,
products designated as orphan medicinal products, advanced therapy medicinal products (“ATMPs”) and products with a
new active substance and indicated for the treatment of certain diseases. For products with a new active substance and indicated
for the treatment of other diseases, products that are highly innovative or for which a centralized process is in the interest
of patients, the centralized procedure is optional.
Under
the centralized procedure, the Committee for Medicinal Products for Human Use (“CHMP”), the main scientific committee
established at the European Medicines Agency (“EMA)”, is responsible for conducting the scientific assessment of the
future medicinal product. The CHMP is also responsible for several post-authorization and maintenance activities, such as the
assessment of modifications or extensions to an existing marketing authorization. The maximum timeframe for the evaluation of
an MAA is 210 days, excluding clock stops. The European Commission grants or refuses the marketing authorization, following
a procedure that involves representatives of the member states. The European Commission’s decision is in accordance with
the CHMP scientific assessment except in very rare cases.
Pursuant
to Regulation (EC) 1394/2007, specific rules apply to ATMPs, a category that is comprised of gene therapy medical products, somatic
cell therapy medicinal products, and tissue-engineered medicinal products. Those rules have triggered the adoption of guidelines
on manufacturing, clinical trials and pharmacovigilance that adapt the general regulatory requirements to the specific characteristics
of ATMPs. Regulation (EC) 1394/2007 introduced a “hospital exemption.” which authorizes hospitals to develop ATMP
for their internal use without having obtained a marketing authorization and to complying with European Union pharmaceutical law.
The hospital exemption, which is in essence a compounded ATMP, has been transposed in all Member States, sometimes in such a way
that the ATMPs under the hospital exemption are competitive alternatives to ATMPs with marketing authorization. The broad use
of the hospital exemption by national hospitals led the European Commission to discuss with the Member States a more reasonable
application of the hospital exemption that would not undermine the common legal regime for ATMP.
Marketing
authorization is valid for five years in principle and the marketing authorization may be renewed after five years on
the basis of a re-evaluation of the risk-benefit balance by the EMA or the competent authority of the authorizing member state.
To this end, the marketing authorization holder must provide the EMA or the competent authority with a consolidated version of
the file in respect of quality, safety and efficacy, including all variations introduced since the marketing authorization was
granted, at least six months before the marketing authorization ceases to be valid. Once renewed, the marketing authorization
is valid for an unlimited period, unless the European Commission or the national competent authority decides, on justified grounds
relating to pharmacovigilance, to proceed with one additional renewal. Any authorization which is not followed by the actual placing
of the medicinal product on the European Union market (in case of centralized procedure) or on the market of the authorizing member
state within three years after authorization ceases to be valid (the so-called sunset clause).
Orphan
Designation
Countries
other than the United States have adopted a specific legal regime to support the development and marketing of drugs and biologics
for rare diseases.
For
example, in the European Union, Regulation 141/2000 organizes the grant of orphan drug designations to promote the development
of products that are intended for the diagnosis, prevention or treatment of life threatening or chronically debilitating conditions
affecting not more than five in 10,000 persons in the European Economic Area (the European Union, plus Iceland, Liechtenstein
and Norway) (or where it is unlikely that the development of the medicine would generate sufficient return to justify the investment)
and for which no satisfactory method of diagnosis, prevention or treatment has been authorized or, if a method exists, the product
would be of significant benefit to those affected. The EMA’s Committee for Orphan Medicinal Products (“COMP”)
examines if the orphan criteria are met and gives opinions thereon, and the orphan status is granted by the European Commission.
The meeting of the criteria for orphan designation is examined again by the COMP at the time of approval of the medicinal product,
which typically occurs several years after the grant of the orphan designation. If the criteria for orphan designation are no
longer met at that time, the European Commission withdraws the orphan status.
In
the European Union, orphan drug designation entitles the sponsor to financial incentives such as reduction of fees or fee waivers
and to ten years of market exclusivity granted following medicinal product approval. Market exclusivity precludes the EMA or a
national regulatory authority from validating another MAA, and the European Commission or a national regulatory authority from
granting another marketing authorization, for a same or similar medicinal product and a same therapeutic indication, for that
time period. This 10-year period may be reduced to six years if the orphan drug designation criteria are no longer met, including
where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity. The orphan exclusivity
may be lost vis-à-vis another medicinal product in cases the manufacturer is unable to assure sufficient quantity of the
medicinal product to meet patient needs or if that other product is proved to be clinically superior to the approved orphan product.
A drug is clinically superior if it is safer, more effective or makes a major contribution to patient care. Orphan drug designation
must be requested before submitting a MAA. Orphan drug designation does not convey any advantage in, or shorten the duration of,
the regulatory review and approval process, and it does not afford any regulatory exclusivity until a marketing authorization
is granted.
Expedited
Development and Approval
Mechanisms
are in place in many jurisdictions that allow an earlier approval of the drug so that it reaches patients with unmet medical needs
earlier. The European Union, for example, has instituted several expedited approval mechanisms including two mechanisms that are
specific to the centralized procedure:
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the
accelerated approval: the EMA may reduce the maximum timeframe for the evaluation of
an MAA from 210 days to 150 days when the future medicinal product is of major interest
from the point of view of public health, in particular from the viewpoint of therapeutic
innovation.
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the
conditional marketing authorization: as part of its marketing authorization process,
the European Commission may grant marketing authorizations on the basis of less complete
data than is normally required.
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A
conditional marketing authorization may be granted when the CHMP finds that, although comprehensive clinical data referring to
the safety and efficacy of the medicinal product have not been supplied, all the following requirements are met:
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the
risk/benefit balance of the medicinal product is positive;
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it
is likely that the applicant will be in a position to provide the comprehensive clinical
data;
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unmet
medical needs will be addressed; and
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the
benefit to public health of the immediate availability on the market of the medicinal
product concerned outweighs the risk inherent in the fact that additional data is still
required.
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The
granting of a conditional marketing authorization is typically restricted to situations in which only the clinical part of the
application is not yet fully complete. Incomplete preclinical or quality data may however be accepted if duly justified and only
in the case of a product intended to be used in emergency situations in response to public health threats.
Conditional
marketing authorizations are valid for one year, on a renewable basis. The conditions to which approval is subject will typically
require the holder to complete ongoing trials or to conduct new trials with a view to confirming that the benefit-risk balance
is positive and to collect pharmacovigilance data. Once the conditions to which the marketing authorization is subject are fulfilled,
the conditional marketing authorization is transformed into a regular marketing authorization. If, however, the conditions are
not fulfilled with the timeframe set by EMA, the conditional marketing authorization ceases to be renewed.
The
EMA has also implemented the so-called “PRIME” (PRIority MEdicines) status in order support the development and accelerate
the approval of complex innovative medicinal products addressing an unmet medical need. PRIME status enables early dialogue with
the relevant EMA scientific committees and, possibly, some payors and thus reinforces the EMA’s scientific and regulatory
support. It also opens accelerated assessment of the MAA as PRIME status, is normally reserved for medicinal products that may
benefit from accelerated assessment, i.e., medicines of major interest from a public health perspective, in particular from a
therapeutic innovation perspective.
Finally,
all medicinal products (i.e. decentralized and centralized procedures) may benefit from an MA “under exceptional circumstances.”
This marketing authorization is close to the conditional marketing authorization as it is reserved to medicinal products to be
approved for severe diseases or unmet medical needs and the applicant does not hold the complete data set legally required for
the grant of a marketing authorization. However, unlike the conditional marketing authorization, the applicant does not have to
provide the missing data and will never have to. The risk-benefit of the medicinal product is reviewed annually. As a result,
although the MA “under exceptional circumstances” is granted definitively, the risk-benefit balance of the medicinal
product is reviewed annually and the marketing authorization is withdrawn in case the risk-benefit ratio is no longer favorable.
Pediatrics
Mandatory
testing in the pediatric population is required in more and more jurisdictions. The European Union has enacted a complex and very
stringent system that has inspired other jurisdictions, including the United States and Switzerland. Any application for approval
of (i) a medicinal product containing a new active substance or (ii) a new therapeutic indication, pharmaceutical form or route
of administration of an already authorized medicinal product which contains an active substance still protected by a supplementary
protection certificate (“SPC”) or a patent that qualifies for an SPC, must include pediatric data. Otherwise, the
application is not validated by the competent regulatory authority. The submission of pediatric data is mandatory in those cases,
even if the application concerns an adult use. Submission of pediatric data is not required or fully required if the EMA granted,
respectively, a full or partial waiver to pediatric development. Moreover, that submission can be postponed if the EMA grants
a deferral in order not to delay the submission of the MAA for the adult population.
The
pediatric data are generated through the implementation of a pediatric investigation plan (“PIP”) that is proposed
by the company after completion of the PK studies in adults and agreed upon by the EMA, typically after some modifications. The
PIP lists all the studies to conduct and measures to take in order to prove the safety and efficacy of the future medicinal product
when used in children. The EMA may agree to modify the PIP at the company’s request. The scope of the PIP is the adult therapeutic
indication or the condition of which the adult application is part or even the mechanism of action of the active substance, at
the EMA’s quasi-discretion. This very broad discretion enables the EMA to require companies to develop children indications
that are different from the adult indications.
Completion
of a PIP renders the company eligible for a pediatric reward, which can be six-month extension of the term of the SPC or, in the
cases of orphan medicinal products, two additional years of market exclusivity. The reward is subject, among other conditions,
to the PIP being fully completed, to the pediatric medicinal product being approved in all the member states, and to the results
of the pediatric studies being mentioned, in one way or another (for example, the approval of a pediatric indication), in the
summary of product characteristics of the product.
Post-Marketing
Requirements
Many
countries impose post-marketing requirements similar to those imposed in the United States, in particular safety monitoring or
pharmacovigilance. In the European Union, pharmacovigilance data are the basis for the competent regulatory authorities imposing
the conduct of post-approval safety or efficacy study, including on off-label use. Non-compliance with those requirements can
result in significant financial penalties as well as the suspension or withdrawal of the marketing authorization.
Supplementary
Protection Certificate and Regulatory Exclusivities
In
some countries other than the United States, some of our patents may be eligible for limited patent term extension, depending
upon the timing, duration and specifics of the regulatory approval of our product candidates and any future product candidates.
Furthermore, authorized drugs and biologics may benefit from regulatory exclusivities (in additional to patent protection resulting
from patents).
In the European Union, Regulation (EC) 469/2009
institutes SPCs. An SPC is an extension of the term of a patent that compensates for the patent protection lost because of the
legal requirements to conduct safety and efficacy tests and to obtain a marketing authorization before placing a medicinal product
on the market. An SPC may be applied for any active substance that is protected by a “basic patent” (a patent chosen
by the patent holder, which can be a product, process or application patent) and has not been placed on the market as a medicinal
product before having obtained a marketing authorization in accordance with European Union pharmaceutical law. The term of the
SPC is maxiumum five years, and the combined patent and SPC protection may not exceed fifteen years from the date of the first
marketing authorization in the European Economic Area (“EEA”). SPC rights are restricted by both the basic patent and
the marketing authorization, i.e., the SPC grants the same rights as those conferred by the basic patent but limited to the active
substance covered by the marketing authorization (and any use as medicinal product approved afterwards).
While
SPC are regulated at the European level, they are granted by the national patent offices. The grant of an SPC requires a basic
patent granted by the national patent office and a marketing authorization, which is the first marketing authorization for the
active substance as a medicinal product in the country. Furthermore, no SPC must have already been granted to the active substance,
and the application for the SPC must be filed with the national patent office within six months of the first marketing authorization
in the EEA or the grant of the basic patent, whichever is the latest.
In
the future, we may apply for an SPC for one or more of our currently owned or licensed European patents to add patent life beyond
their current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing
of the relevant MAA.
Furthermore,
in the European Union, medicinal products may benefit from the following regulatory exclusivities: data exclusivity, market protection,
market exclusivity, and pediatric reward.
A medicinal product that contains a new active
substance (reference medicinal product) is granted eight years of data exclusivity followed by two years of market protection.
Data exclusivity prevents other companies from referring to the non-clinical and clinical data in marketing authorization dossier
of the reference medicinal product for submission of generic MAA purposes, and market protection prevents other companies from
placing generics on the market. Pursuant to the concept of global marketing authorization, any further development of that medicinal
product (e.g., new indication, new form, change to the active substance) by the marketing authorization holder does not trigger
any new or additional protection. The authorization of any new development is considered as “falling” into the initial
marketing authorization with regard to regulatory protection; hence, the new development only benefits from the regulatory protection
that remains when it is authorized. The only exception is a new therapeutic indication that is considered as bringing a significant
clinical benefit in comparison to the existing therapies. Such new indication will add one-year of market protection to the global
marketing authorization, provided that it is authorized within the first eight years of authorization (i.e., during the data exclusivity
period). Moreover, a new therapeutic indication of a “well-established substance” benefits from one-year data exclusivity
but limited to the non-clinical and clinical data supporting the new indication. Any active substance approved for at least ten
years in the EEA qualifies as well-established substance.
Biosimilars
may be approved through an abbreviated approval pathway after the expiration of the eight-year data exclusivity period and may
be marketed after the 10 or 11-year market protection period. The approval of biosimilars requires the applicant to demonstrate
similarity between the biosimilar and the biologicial medicinal product and to submit the non-clinical and clinical data defined
by the EMA. The biosimilar legal regime has been mainly developed through EMA’s scientific guidelines applicable to categories
of biological active substances. Unlike in the United States, interchangeability is regulated by each member state.
Market
exclusivity is a regulatory protection exclusively afforded to medicinal products with an orphan status. Market exclusivity precludes
the EMA or a national regulatory authority from validating another MAA, and the European Commission or a national regulatory authority
from granting another marketing authorization, for a same or similar medicinal product and a same therapeutic indication, for
a period of ten years from approval (see above).
Pediatric
reward is another regulatory exclusivity. Completion of a PIP renders the company eligible for a pediatric reward, which can be
six-month extension of the term of the SPC or, in the cases of orphan medicinal products, two additional years of market exclusivity
(see above). In case a PIP is completed on a voluntary basis, i.e., for an approved medicinal product that is not or no longer
protected by an SPC or a basic patent, the pediatric reward takes the form of a “pediatric use marketing authorization”
(“PUMA”). That special authorization does not fall into the global marketing authorization and thus benefits from
eight years of data exclusivity followed by two or three years of market protection.
U.S.
Cosmetics Regulations
In
the United States, cosmetics are regulated by the FDA under the FDCA. The FDCA defines cosmetics as “(1) articles intended
to be rubbed, poured, sprinkled, or sprayed on, introduced into, or otherwise applied to the human body or any part thereof for
cleansing, beautifying, promoting attractiveness, or altering the appearance, and (2) “articles intended for use as a component
of any such articles; except that such term shall not include soap.” The FDA clarifies that cosmetics “are intended
to beautify, promote attractiveness, alter appearance or cleanse” and explicitly states that cosmetics are “not …
intended to effect structure or function of the body.” Manufacturers must ensure that cosmetics are safe for use as intended
prior to marketing. To determine the safety of cosmetics, the FDA considers the ingredient safety, trace chemicals contamination
and microbiological safety. Even “good” microbes may only be present at certain levels to meet the FDA’s microbiologic
safety standards for cosmetics. Product labeling must be truthful and not misleading and present all required labeling elements
(including statement of identity, net weight, ingredients, and any relevant warnings).
In
some cases, products that are intended for cosmetic use, but also have a drug application, are classified as both a cosmetic and
a drug. Under the FDCA, a “drug” is defined an article “intended for use in the diagnosis, cure, mitigation,
treatment, or prevention of disease,” an article “(other than food) intended to affect the structure or any function
of the body,” and article intended as a component of any of the previously listed articles. Although product claims inform
FDA’s and the consumer’s understanding of a product’s intended use, FDA will also consider ingredients and the
mode of action to make a final determination as to the actual intended use of a product. Biological products, more commonly referred
to as biologics, are defined by the PHSA. Biologics also meet the definition of drug
under the FDCA and FDA and include therapeutic products containing microorganisms. All drug products, regardless if they are also
cosmetics, must meet all FDA requirements, including premarket approval. As part of the approval process, manufacturers must demonstrate
that drugs are safe and effective for their intended uses and develop labeling, which also must be approved. If a substance has
an open drug application with the FDA or it is an already approved drug, it cannot be a cosmetic.
A
product claiming to impart activity to the skin may fall under either one or both definitions described above, according to the
intended use that the manufacturer establishes for the product. That is, a product that claims only to alter the appearance of
the skin would be regulated solely as a cosmetic, while a product that claims to induce a change in the structure or function
of the body (skin included) would be regulated as a drug. Under the FDCA, a product that makes both types of claims would be considered
both a cosmetic and a drug. This system of classification, however, in the context of the FDCA, does not make the product’s
composition irrelevant. Even though the classification of the product primarily depends on the claims associated with the product,
the mention of drug substances on the product label (i.e. in the ingredient declaration) can be construed as implied drug claims.
From
a practical point of view, and presuming that safety has been substantiated, the manufacturers of skin care products that could
potentially affect the structure or function of the skin are confronted with a dilemma: if the product is marketed as a cosmetic,
no claims may be made about any “active” ingredients that may alter the skin; if a physiological effect is claimed,
on the other hand, the manufacturer would be faced with a lengthy and costly NDA process
or a possible enforcement action by the FDA.
Violations
of the FDCA are generally fall under at least one of two provisions: Products that contain substances that may be injurious to
health or are otherwise impermissible (including the presence of a drug substances without proper labeling) are adulterated, and
products that are not properly labeled (including claims) are misbranded. The presence of drug substances in a product that is
solely being marketed as a cosmetic (and not also as an approved drug) would likely render the product adulterated in the eyes
of FDA.
The
FDCA requires that every cosmetic product and its individual ingredients be substantiated for safety and that product labeling
be truthful and not misleading. Cosmetic manufacturers are responsible for ensuring that products comply with the law before they
are marketed. If FDA determines that a cosmetic product does not meet the requirements established by law or is otherwise adulterated
or misbranded under the FDCA, FDA has the authority to:
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Ban
or restrict cosmetic ingredients for safety reasons
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Refuse
importation of cosmetics that may be adulterated or misbranded
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Inspect
manufacturing facilities
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Seize
unsafe or misbranded products
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Enjoin
unlawful activities
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Prosecute
and jail violators
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Work
with cosmetic manufacturers in implementing nationwide product recalls
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Collect
samples for examination and analysis as part of cosmetic plant inspections, import inspections,
and follow-up to complaints of adverse reactions
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Conduct
research on cosmetic and personal care products and ingredients to address safety concerns
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Cosmetic
products must be labeled in accordance with the Fair Packaging and Labeling Act (the “FPLA”) and FDCA, including ingredient
labeling. Cosmetic product advertising is also subject to regulation. Any claims made with regards to product efficacy to the
extent such claims may affect a consumer’s choice whether to purchase a product or not, are regulated by the Federal Trade
Commission under the authority of the Federal Trade Commission Act (“FTCA”).
European
Union Cosmetics Regulation
Regulation (EC) No. 1223/2009 (the “Cosmetic
Regulation”) is the key European legislation governing finished cosmetics products in the European Union. The European Union’s
framework of cosmetics regulations are binding on all member states and is enforced at the national level. Over the years, the
European Union cosmetics legal regime has been adopted by many countries around the world.
Under
the Cosmetic Regulation, a “cosmetic product” means any substance or mixture intended to be placed in contact with
external parts of the human body (epidermis, hair system, nails, lips and external genital organs) or with the teeth and the mucous
membranes of the oral cavity with a view exclusively or mainly to cleaning them, perfuming them, changing their appearance, protecting
them, keeping them in good condition or correcting body odors. A substance or mixture intended to be ingested, inhaled, injected
or implanted into the human body shall not be considered to be a cosmetic product, nor shall a product (i) the composition of
which is such that it has a significant action on the body through a pharmacological, immunologicalor metabolic action; or (ii)
for which medical claims are made. Legally, such a product is a medicinal product, not a cosmetic.
The
company that is ‘responsible’ for placing a cosmetic product on the European Union market is subject to a series of
obligations. In particular:
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Manufacture
cosmetic products in compliance with good manufacturing practice.
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Create
for each cosmetic product a product information file (“PIF”) that contains, among
other information, “proof of the effect claimed for the cosmetic product, where
justified by the nature of the effect or product” and the test results that demonstrate
the claimed effects for the cosmetics product.
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Submit
information on every product through the Cosmetic Products Notification Portal (“CPNP”).
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Comply
with Regulation (EU) No. 655/2013 that lists common criteria for claims.
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Report
adverse experiences or keep them available for inspection by the competent authorities.
Poison control centers have information available on standard formulations for medical
emergency treatment.
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The
European Union legal regime is a risk-based legislation, with consumer safety as the main goal. As such, proof of the safety of
the finished cosmetic product and each of its ingredients is the responsibility of the manufacturer or the importer in the European
Union. The safety assessment report is a key part of the PIF.
With
the exception of color additives, sunscreen active ingredients and preservatives, no pre-market approval is needed for cosmetics.
However, the Cosmetic Regulation includes a list of ingredients that are prohibited and a list of ingredients that are restricted
in cosmetic products. Nano-materials are authorized, provided that their presence is disclosed on the label. Moreover, animal
testing is prohibited for finished cosmetic products and their ingredients.
Each
member state appoints a competent authority to enforce the Cosmetic Regulation in its territory and to cooperate with each other
and the European Commission. The European Commission is responsible for driving consistency in the way the Cosmetic Regulation
is enforced.
Other
U.S. Healthcare Laws and Compliance Requirements
In
addition to FDA restrictions on the marketing of pharmaceutical products, we may be subject to various federal and state laws
targeting fraud and abuse in the healthcare industry. These laws may impact, among other things, our business or financial
arrangements and relationships through which we market, sell and distribute the products, if any, for which we obtain approval.
In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct
our business. The laws that may affect our ability to operate include:
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the
federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully
soliciting, receiving, offering or paying any remuneration (including any kickback, bribe,
or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce,
or in return for, either the referral of an individual, or the purchase, lease, order
or recommendation of any good, facility, item or service for which payment may be made,
in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid
programs; a person or entity does not need to have actual knowledge of the federal Anti-Kickback
Statute or specific intent to violate it to have committed a violation. In addition,
the government may assert that a claim including items or services resulting from a violation
of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes
of the federal False Claims Act or federal civil money penalties statute;
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federal
civil and criminal false claims laws and civil monetary penalties laws, such as the federal
False Claims Act, which impose criminal and civil penalties and authorize civil whistleblower
or qui tam actions, against individuals or entities for, among other things: knowingly
presenting, or causing to be presented, to the federal government, claims for payment
that are false or fraudulent; making, using or causing to be made or used, a false statement
or record material to a false or fraudulent claim or obligation to pay or transmit money
or property to the federal government; or knowingly concealing or knowingly and improperly
avoiding or decreasing an obligation to pay money to the federal government;
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the
anti-inducement law, which prohibits, among other things, the offering or giving of remuneration,
which includes, without limitation, any transfer of items or services for free or for
less than fair market value (with limited exceptions), to a Medicare or Medicaid beneficiary
that the person knows or should know is likely to influence the beneficiary’s selection
of a particular supplier of items or services reimbursable by a federal or state governmental
program;
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HIPAA,
which created new federal criminal statutes that prohibit knowingly and willfully executing,
or attempting to execute, a scheme to defraud any healthcare benefit program or obtain,
by means of false or fraudulent pretenses, representations, or promises, any of the money
or property owned by, or under the custody or control of, any healthcare benefit program,
regardless of the payor (e.g., public or private) and knowingly and willfully falsifying,
concealing or covering up by any trick or device a material fact or making any materially
false statements in connection with the delivery of, or payment for, healthcare benefits,
items or services relating to healthcare matters; similar to the federal Anti-Kickback
Statute, a person or entity does not need to have actual knowledge of the statute or
specific intent to violate it in order to have committed a violation;
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HIPAA,
as amended by the Health Information Technology for Economic and Clinical Health Act
of 2009, and their respective implementing regulations, which impose requirements on
certain covered healthcare providers, health plans, and healthcare clearinghouses as
well as their respective business associates that perform services for them that involve
the use, or disclosure of, individually identifiable health information, relating to
the privacy, security and transmission of individually identifiable health information;
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the
federal transparency requirements under the Affordable Care Act, including the provision
commonly referred to as the Physician Payments Sunshine Act, which requires manufacturers
of drugs, devices, biologics and medical supplies for which payment is available under
Medicare, Medicaid or the Children’s Health Insurance Program to report annually
to the U.S. Department of Health and Human Services information related to payments or
other transfers of value made to physicians (defined to include doctors, dentists, optometrists,
podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment
interests held by the physicians described above and their immediate family members;
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federal
government price reporting laws, which require us to calculate and report complex pricing
metrics in an accurate and timely manner to government programs; and
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federal
consumer protection and unfair competition laws, which broadly regulate marketplace activities
and activities that potentially harm consumers.
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Additionally,
we are subject to state and foreign equivalents of each of the healthcare laws described above, among others, some of which may
be broader in scope and may apply regardless of the payor. Many U.S. states have adopted laws similar to the federal Anti-Kickback
Statute, some of which apply to the referral of patients for healthcare services reimbursed by any source, not just governmental
payors, including private insurers. In addition, some states have passed laws that require pharmaceutical companies to comply
with the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers and/or the Pharmaceutical
Research and Manufacturers of America’s Code on Interactions with Healthcare Professionals. Several states also impose other
marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state. There are ambiguities
as to what is required to comply with these state requirements and if we fail to comply with an applicable state law requirement
we could be subject to penalties. Finally, there are state and foreign laws governing the privacy and security of health
information, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating
compliance efforts.
Because
of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some
of our business activities could be subject to challenge under one or more of such laws.
Violations
of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including penalties, fines, imprisonment and/or
exclusion or suspension from federal and state healthcare programs such as Medicare and Medicaid and debarment from contracting
with the U.S. government. In addition, private individuals have the ability to bring actions on behalf of the U.S. government
under the federal False Claims Act as well as under the false claims laws of several states.
Law
enforcement authorities are increasingly focused on enforcing fraud and abuse laws, and it is possible that some of our practices
may be challenged under these laws. Efforts to ensure that our current and future business arrangements with third parties, and
our business generally, will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible
that governmental authorities will conclude that our business practices, including our arrangements with physicians and other
healthcare providers, some of whom receive stock options as compensation for services provided, may not comply with current or
future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations.
If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those
actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties,
damages, disgorgement, monetary fines, imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal
healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations,
any of which could adversely affect our ability to operate our business and our results of operations. In addition, the approval
and commercialization of any of our product candidates outside the United States will also likely subject us to foreign equivalents
of the healthcare laws mentioned above, among other foreign laws.
If
any of the physicians or other healthcare providers or entities with whom we expect to do business are found to be not in compliance
with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government
funded healthcare programs, which may also adversely affect our business.
Much
like the Anti-Kickback Statute prohibition in the United States, the provision of benefits or advantages to physicians to induce
or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is also prohibited
in the European Union. The provision of benefits or advantages to physicians is mainly governed by the national anti-bribery laws
of the member states, such as the UK Bribery Act 2010, or national anti-kickback provisions (France, Belgium, etc). Infringement
of these laws could result in substantial fines and imprisonment. In certain member states, payments made to physicians must be
publicly disclosed. Moreover, agreements with physicians often must be the subject of prior notification and approval by the physician’s
employer, his or her competent professional organization and/or the regulatory authorities of the individual member states. These
requirements are provided in the national laws, industry codes or professional codes of conduct, applicable in the member states.
Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines
or imprisonment.
Additional
Regulation
In
addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the Occupational
Safety and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act, affect our business. These
and other laws govern our use, handling and disposal of various biological, chemical and radioactive substances used in, and wastes
generated by, our operations. If our operations result in contamination of the environment or expose individuals to hazardous
substances, we could be liable for damages and governmental fines. We believe that we are in material compliance with applicable
environmental laws and that continued compliance therewith will not have a material adverse effect on our business. We cannot
predict, however, how changes in these laws may affect our future operations.
U.S.
Foreign Corrupt Practices Act
The
U.S. Foreign Corrupt Practices Act, to which we are subject, prohibits corporations and individuals from engaging in certain activities
to obtain or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize
the payment of anything of value to any foreign government official, government staff member, political party or political candidate
in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. Similar rules apply
to many other countries worldwide such as France (“Loi Sapin”) or the United Kingdom (UK Bribery Act).
U.S.
Healthcare Reform
A
primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party
payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medical products. For
example, in March 2010, the Affordable Care Act was enacted, which, among other things, increased the minimum Medicaid rebates
owed by most manufacturers under the Medicaid Drug Rebate Program; introduced a new methodology by which rebates owed by manufacturers
under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; extended
the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in Medicaid managed care plans; imposed
mandatory discounts for certain Medicare Part D beneficiaries as a condition for manufacturers’ outpatient drugs coverage
under Medicare Part D; subjected drug manufacturers to new annual fees based on pharmaceutical companies’ share of sales
to federal healthcare programs; imposed a new federal excise tax on the sale of certain medical devices; created a new Patient
Centered Outcomes Research Institute to oversee, identify priorities in and conduct comparative clinical effectiveness research,
along with funding for such research; and established the Center for Medicare Innovation at the CMS to test innovative payment
and service delivery models to lower Medicare and Medicaid spending.
Since
its enactment, there have been a number of significant changes to the Affordable Care Act (the “ACA”). On October 13,
2017, President Trump signed an Executive Order terminating the cost-sharing subsidies that reimburse insurers under the Affordable
Care Act. Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request
for a restraining order was denied by a federal judge in California on October 25, 2017. In addition, CMS has recently
proposed regulations that would give states greater flexibility in setting benchmarks for insurers in the individual and small
group marketplaces, which may have the effect of relaxing the essential health benefits required under the Affordable Care Act
for plans sold through such marketplaces. In January 2017, President Trump signed an Executive Order directing federal agencies
with authorities and responsibilities under the Affordable Care Act to waive, defer, grant exemptions from, or delay the implementation
of any provision of the Affordable Care Act that would impose a fiscal or regulatory burden on states, individuals, healthcare
providers, health insurers, or manufacturers of pharmaceuticals or medical devices.
The
Tax Cuts and Jobs Act of 2017 (“TCJA”), includes a provision repealing, effective January 1, 2019, the tax-based
shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all
or part of a year that is commonly referred to as the “individual mandate.” Additionally, on January 22, 2018,
President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain
ACA-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plan,
the annual fee imposed on certain health insurance providers based on market share, and the medical device exercise tax on non-exempt
medical devices. Further, the Bipartisan Budget Act of 2018, among other things, amends the ACA, effective January 1,
2019, to reduce the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” Congress will
likely consider other legislation to replace or modify elements of the Affordable Care Act. We continue to evaluate the effect
that the Affordable Care Act and its possible repeal, replacement or further modification could have on our business. It is uncertain
the extent to which any such changes may impact our business or financial condition.
In
addition, the Budget Control Act of 2011 and the Bipartisan Budget Act of 2015 led to aggregate reductions of Medicare payments
to providers of up to 2% per fiscal year that will remain in effect through 2027 unless additional Congressional action is
taken. Further, on January 2, 2013, the American Taxpayer Relief Act was signed into law, which, among other things, reduced
Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased
the statute of limitations period for the government to recover overpayments to providers from three to five years. More recently,
there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products,
which have resulted in several recent Congressional inquiries and proposed bills designed to, among other things, bring more transparency
to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement
methodologies for pharmaceutical products. Individual states in the United States have also become increasingly active in passing
legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement
constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in
some cases, designed to encourage importation from other countries and bulk purchasing.
We
expect that additional foreign, federal and state healthcare reform measures will be adopted in the future, any of which could
limit the amounts that federal and state governments will pay for healthcare products and services, which could result in limited
coverage and reimbursement and reduced demand for our products, once approved, or additional pricing pressures.
Coverage
and Reimbursement
Significant
uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. In the
United Sates, cosmetics are not generally eligible for coverage and reimbursement and thus any products that are marketed as cosmetics
will not be covered or reimbursed. In the United States and markets in other countries, sales of any products for which we receive
regulatory approval for commercial sale will depend, in part, on the availability of coverage and reimbursement from third-party
payors. Third-party payors include government authorities, managed care providers, private health insurers and other organizations.
The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the
reimbursement rate that the payor will pay for the product. Third-party payors may limit coverage to specific products on an approved
list, or formulary, which might not include all of the FDA-approved products for a particular indication. A decision by a third-party
payor not to cover our products could reduce physician utilization of our products once approved and have a material adverse effect
on our sales, results of operations and financial condition. Moreover, a payor’s decision to provide coverage for a product
does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to
enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.
In
addition, coverage and reimbursement for products can differ significantly from payor to payor. One third-party payor’s
decision to cover a particular medical product or service does not ensure that other payors will also provide coverage for the
medical product or service, or will provide coverage at an adequate reimbursement rate.
As
a result, the coverage determination process will require us to provide scientific and clinical support for the use of our products
to each payor separately and will be a time-consuming process.
Third-party
payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and
services, in addition to their safety and efficacy. In order to obtain and maintain coverage and reimbursement for any product,
we may need to conduct expensive clinical trials in order to demonstrate the medical necessity and cost-effectiveness of such
product, in addition to the costs required to obtain regulatory approvals. If third-party payors do not consider a product to
be cost-effective compared to other available therapies, they may not cover the product as a benefit under their plans or, if
they do, the level of payment may not be sufficient to allow a company to sell its products at a profit.
Outside
of the United States, the pricing of pharmaceutical products is subject to governmental control in many countries. For example,
in the European Union, pricing and reimbursement schemes vary widely from member state to member state. Some countries provide
that products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional
studies that compare the cost-effectiveness of a particular therapy to currently available therapies or so-called health technology
assessments, in order to obtain reimbursement or pricing approval. Other countries may allow companies to fix their own prices
for products, but monitor and control product volumes and issue guidance to physicians to limit prescriptions. Efforts to control
prices and utilization of pharmaceutical products and medical devices will likely continue as countries attempt to manage healthcare
expenditures.
SELECTED
HISTORICAL FINANCIAL INFORMATION OF CHAC
The
following tables summarize the relevant financial data for CHAC’s business and should be read in conjunction
with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of CHAC”
and its audited and unaudited interim financial statements, and the notes and schedules related thereto, which are
incorporated by reference in or included elsewhere in this proxy statement.
CHAC’s consolidated
balance sheet data as of June 30, 2019 and consolidated statement of operations data for the year ended June 30, 2019 are derived
from CHAC’s audited financial statements included elsewhere in this proxy statement. CHAC’s balance sheet data as
of June 30, 2018 and statement of operations data for the period from November 1, 2017 (inception) through June 30, 2018 are derived
from CHAC’s audited financial statements included elsewhere in this proxy statement.
The
historical results presented below are not necessarily indicative of the results to be expected for any future period. You should
read the following selected financial information in conjunction with CHAC’s financial statements and related notes and
“Management’s Discussion and Analysis of Financial Condition and Results of Operation of CHAC” contained
elsewhere herein.
(in
thousands, except share and per share data)
|
|
Year
Ended
June 30,
2019
|
|
|
For the
Period from
November 1, 2017 (inception)
through
June 30,
2018
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
—
|
|
Loss from operations
|
|
|
(405
|
)
|
|
|
(1
|
)
|
Interest income on marketable securities
|
|
|
887
|
|
|
|
—
|
|
Interest income – other
|
|
|
6
|
|
|
|
—
|
|
Unrealized gain on marketable securities
|
|
|
(6
|
)
|
|
|
—
|
|
Provision for income taxes
|
|
|
(135
|
)
|
|
|
—
|
|
Net income (loss)
|
|
|
347
|
|
|
|
(1
|
)
|
Basic and diluted net loss per share
|
|
|
(0.15
|
)
|
|
|
(0.00
|
)
|
Weighted average shares outstanding — basic and diluted
|
|
|
1,996,149
|
|
|
|
1,750,000
|
|
Balance Sheet Data:
|
|
As of
June 30,
2019
|
|
|
As of
June 30,
2018
|
|
Working capital (deficit)
|
|
$
|
553
|
|
|
$
|
(41
|
)
|
Trust account
|
|
|
70,881
|
|
|
|
—
|
|
Total assets
|
|
|
71,619
|
|
|
|
65
|
|
Total liabilities
|
|
|
871
|
|
|
|
41
|
|
Value of common stock subject to redemption
|
|
|
65,748
|
|
|
|
—
|
|
Stockholders’ equity
|
|
|
5,000
|
|
|
|
24
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS OF CHAC
The
following discussion should be read in conjunction with our financial statements and footnotes thereto incorporated by reference
into this proxy statement.
Overview
CHAC
was incorporated as a blank check company on November 1, 2017, as a Delaware corporation, for the purpose of entering into a merger,
share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or
more businesses or entities, which we refer to as a “target business.”
We
presently have no revenue, have had losses since inception from incurring formation costs and have no other operations other than
the active solicitation of a target business with which to complete a business combination. We have relied upon the sale of our
securities and loans from our officers and directors to fund our operations.
Offering
Proceeds Held in Trust
On
December 18, 2018, CHAC consummated its Initial Public Offering of 7,000,000 Units. The Units sold in the Initial Public Offering
were sold at an offering price of $10.00 per Unit, generating total gross proceeds of $70,000,000. We granted the underwriters
a 45-day option to purchase up to 1,050,000 additional Units to cover over-allotments at the Initial Public Offering price, less
the underwriting discounts and commissions. The overallotment option expired unexercised on February 4, 2019.
Simultaneous with the consummation
of the Initial Public Offering, we consummated the private placement of an aggregate of 2,900,000 Private CHAC Warrants, each
exercisable to purchase one share of the Company’s common stock for $11.50 per share, to Mountain Wood, LLC, an affiliate
of the Sponsor at a price of $0.40 per Private CHAC Warrant, generating total proceeds of $1,160,000. The issuance was made pursuant
to the exemption from registration contained in Section 4(a)(2) of the Securities Act. These Private CHAC Warrants are identical
to the warrants underlying the Units sold in the Initial Public Offering, except that these warrants are not transferable, assignable
or salable until after the completion of a business combination, subject to certain limited exceptions. Additionally, these warrants
are exercisable on a cashless basis and are non-redeemable so long as they are held by the initial purchasers or their permitted
transferees.
After
deducting the underwriting discounts, offering expenses, and commissions from the Initial Public Offering and the sale of the
Private CHAC Warrants, a total of $70,000,000 was deposited into a trust account established for the benefit of CHAC’s public
stockholders, and the remaining proceeds became available to be used to provide for business, legal and accounting due diligence
on prospective business combinations and continuing general and administrative expenses.
As of June 30, 2019, a total of $70,881,151
was in the trust account established for the benefit of our public stockholders.
Our
management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and
the private placement, although substantially all of the net proceeds are intended to be applied generally towards consummating
a business combination successfully.
Results
of Operations
Our
entire activity from inception up to December 18, 2018 was in preparation for the Initial Public Offering. Since the Initial Public
Offering, our activity has been limited to the evaluation of business combination candidates, and we will not be generating any
operating revenues until the closing and completion of our initial business combination. We expect to generate small amounts of
non-operating income in the form of interest income on cash and cash equivalents. Interest income is not expected to be significant
in view of current low interest rates on risk-free investments (treasury securities). We expect to incur increased expenses as
a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence
expenses. We expect our expenses to increase substantially after this period.
For the year ended June 30, 2019, we
had net income of $347,407, which consisted of interest income on marketable securities held in the trust account of $886,972
and interest income from mutual funds of $5,974, offset by operating costs of $404,521, an unrealized loss on marketable securities
held in our trust account of $5,821 and a provision for income taxes of $135,197.
For the period from November 1, 2017
(inception) through June 30, 2018, we had a net loss of $1,025, which consisted of operating costs of $1,025.
Liquidity and Capital Resources
As of June 30, 2019, we had marketable
securities held in the trust account of $70,881,151 (including approximately $881,000 of interest income, net of unrealized losses)
consisting of U.S. Treasury Bills with a maturity of 180 days or less. Interest income on the balance in the trust account may
be used by us to pay taxes. Through June 30, 2019, we had not withdrawn any interest earned on the trust account.
For the year ended June 30, 2019, cash
and cash equivalents used in operating activities was $204,579. Net income of $347,407 was affected by interest earned on marketable
securities held in the trust account of $886,972, an unrealized loss on marketable securities held in our trust account of $5,821
and a deferred tax benefit of $1,222. Changes in our operating assets and liabilities provided $330,387 of cash and cash equivalents
for operating activities.
For the period from November 1, 2017
(inception) through June 30, 2018, cash and cash equivalents used in operating activities was $25. Net loss of $1,025 was offset
by changes in our operating assets and liabilities, which provided $1,000 of cash and cash equivalents.
We intend to use substantially all of the
funds held in the trust account, including any amounts representing interest earned on the trust account (which interest shall
be net of amounts withdrawn to pay our taxes) to complete a business combination. To the extent that our capital stock or debt
is used, in whole or in part, as consideration to complete a business combination, the remaining proceeds held in the trust account
will be used as working capital to finance the operations of the target business.
As of June 30, 2019, we had cash and
cash equivalents of $696,830 held outside the trust account. We intend to use the funds held outside the trust account primarily
to identify and evaluate prospective acquisition candidates, perform business due diligence on prospective target businesses,
travel to and from the offices, plants or similar locations of prospective target businesses, review corporate documents and material
agreements of prospective target businesses, select the target business to acquire and structure, negotiate and complete a business
combination.
Our Sponsor paid a total of $500,000
in underwriting discounts and commissions and received a non-interest bearing promissory note in exchange for the payment of such
amount, which was payable at the closing of a Business Combination. The promissory note was repaid in July 2019 from the unused
net proceeds that were not deposited into the trust fund.
In August 2019, the Sponsor committed
to provide us an aggregate of $500,000 in loans to finance transaction costs in connection with a Business Combination. To the
extent advanced, the loans will be evidenced by a promissory note, will be non-interest bearing, unsecured and will only be repaid
upon the completion of a Business Combination.
In order to fund working capital deficiencies
or finance transaction costs in connection with a business combination, our initial stockholders, officers and directors or their
affiliates may, but are not obligated to, loan us funds from time to time or at any time, as may be required. If we complete a
business combination, we would repay such loaned amounts out of the proceeds of the trust account released to us. In the event
that a business combination does not close, we may use a portion of the working capital held outside the trust account to repay
such loaned amounts, but no proceeds from our trust account would be used to repay such loaned amounts. Up to $500,000 of such
loans may be convertible into CHAC Warrants at a price of $0.40 per private warrant at the option of the lender.
We do not believe we will need to raise
additional funds in order to meet the expenditures required for operating our business. However, if our estimate of the costs
of identifying a target business, undertaking in-depth due diligence and negotiating a business combination are less than the
actual amounts necessary to do so, we may have insufficient funds available to operate our business prior to our Business Combination.
Moreover, we may need to obtain additional financing either to complete our Business Combination or because we become obligated
to redeem a significant number of our public shares upon completion of our Business Combination, in which case we may issue additional
securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws,
we would only complete such financing simultaneously with the completion of our Business Combination. If we are unable to complete
our Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate
the trust account. In addition, following our Business Combination, if cash on hand is insufficient, we may need to obtain additional
financing in order to meet our obligations.
Off-Balance
Sheet Arrangements
We have no obligations,
assets or liabilities, which would be considered off-balance sheet arrangements as of June 30, 2019. We do not participate in
transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest
entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered
into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments
of other entities, or purchased any non-financial assets.
Contractual
obligations
We
do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities.
Critical
Accounting Policies
The
preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical
accounting policies:
Common
stock subject to possible redemption
We
account for our common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification
(“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption
is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common
stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence
of uncertain events not solely within our control) is classified as temporary equity. At all other times, common stock is classified
as stockholders’ equity. Our common stock features certain redemption rights that are considered to be outside of our control
and subject to occurrence of uncertain future events. Accordingly, common stock subject to possible redemption is presented at
redemption value as temporary equity, outside of the stockholders’ equity section of our condensed balance sheets.
Net loss per common share
We apply the two-class
method in calculating earnings per share. Shares of common stock subject to possible redemption which are not currently redeemable
and are not redeemable at fair value, have been excluded from the calculation of basic net loss per share since such shares, if
redeemed, only participate in their pro rata share of the Trust Account earnings. Our net income is adjusted for the portion of
income that is attributable to common stock subject to possible redemption, as these shares only participate in the earnings of
the trust account and not our income or losses.
Recent accounting standards
Management does not believe that any
recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on our consolidated
financial statements.
CHAC’S
BUSINESS
Overview
CHAC
was incorporated as a Delaware corporation on November 1, 2017, for the purpose of entering into a merger, share exchange, asset
acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses or entities,
which we refer to as a “target business.”
CHAC’s
Amended and Restated Certificate of Incorporation provides that its corporate existence will cease and it will liquidate the trust
account (described herein) and distribute the funds included therein to the holders of common stock sold in its Initial Public
Offering if it does not consummate a business combination by the date that is 24 months from the closing of the Initial Public
Offering, or December 18, 2020.
Offering
Proceeds Held in Trust
On
December 18, 2018, we consummated the Initial Public Offering of 7,000,000 Units. The Units sold in the Initial Public Offering
were sold at an offering price of $10.00 per Unit, generating total gross proceeds of $70,000,000. Chardan Capital Markets LLC
acted as sole book-running manager of the Initial Public Offering. The securities in the offering were registered under the Securities
Act on a registration statement on Form
S-1 (No. 333-228533). The SEC declared the registration statement effective on December 13, 2018. We granted the underwriters
a 45-day option to purchase up to 1,050,000 additional Units to cover over-allotments at the Initial Public Offering price, less
the underwriting discounts and commissions. The over-allotment option expired unexercised on February 4, 2019.
Simultaneous with the consummation
of the Initial Public Offering, we consummated the private placement of an aggregate of 2,900,000 Private CHAC Warrants, each
exercisable to purchase one share of the Company’s common stock for $11.50 per share, to Mountain Wood, LLC, an affiliate
of the Sponsor at a price of $0.40 per Private CHAC Warrant, generating total proceeds of $1,160,000. The issuance was made pursuant
to the exemption from registration contained in Section 4(a)(2) of the Securities Act. These Private CHAC Warrants are identical
to the warrants underlying the Units sold in the Initial Public Offering, except that these warrants are not transferable, assignable
or salable until after the completion of a business combination, subject to certain limited exceptions. Additionally, these warrants
are exercisable on a cashless basis and are non-redeemable so long as they are held by the initial purchasers or their permitted
transferees.
Of
the gross proceeds received from the Initial Public Offering and the Private CHAC Warrants, $70,000,000 was
placed in a trust account. We paid a total of $500,000 in underwriting discounts and commissions and $283,566 for other costs
and expenses related to the Initial Public Offering.
Business
Combination Activities
On July 16, 2019, CHAC entered into the Merger Agreement, pursuant to which Merger Sub will merge with
and into BiomX, resulting in CHAC owning all of the issued and outstanding shares and other equity interests of BiomX and BiomX
becoming a wholly-owned subsidiary of CHAC. In the event that the Business Combination is not consummated by December 18, 2020,
CHAC’s corporate existence will cease and CHAC will distribute the proceeds held in the trust account to its public stockholders.
See “The Merger Agreement” for more information.
Redemption
Rights
Pursuant to CHAC’s
Amended and Restated Certificate of Incorporation, CHAC stockholders (except the initial stockholders and the officers and directors
of CHAC) will be entitled to redeem their CHAC Shares for a pro rata share of the trust account (currently anticipated to be no
less than approximately $10.16 per share of common stock for stockholders) net of taxes payable.
CHAC’s
Sponsor and other initial stockholders do not have redemption rights with respect to any common stock owned by them, directly
or indirectly (nor will they seek appraisal rights with respect to such common stock if appraisal rights would be available to
them).
Automatic
Dissolution and Subsequent Liquidation of trust account if No Business Combination
If
we do not complete a business combination within 24 months from the consummation of the Initial Public Offering, it will trigger
our automatic winding up, dissolution and liquidation pursuant to the terms of our Amended and Restated Certificate of Incorporation.
As a result, this has the same effect as if we had formally gone through a voluntary liquidation procedure under the Israeli Companies
Law. Accordingly, no vote would be required from our stockholders to commence such a voluntary winding up, dissolution and liquidation.
If we are unable to consummate our initial Business Combination within such time period, we will, as promptly as possible but
not more than ten business days thereafter, redeem 100% of our outstanding public shares for a pro rata portion of the funds held
in the trust account, including a pro rata portion of any interest earned on the funds held in the trust account and not necessary
to pay our taxes, and then seek to liquidate and dissolve. However, we may not be able to distribute such amounts as a result
of claims of creditors which may take priority over the claims of our public stockholders. In the event of our dissolution and
liquidation, the public rights will expire and will be worthless.
If
we are forced to liquidate the trust account, we anticipate that we would distribute to our public stockholders the amount in
the trust account calculated as of the date that is two days prior to the distribution date (including any accrued interest).
Prior to such distribution, we would be required to assess all claims that may be potentially brought against us by our creditors
for amounts they are actually owed and make provision for such amounts, as creditors take priority over our public stockholders
with respect to amounts that are owed to them. We cannot assure you that we will properly assess all claims that may be potentially
brought against us. As such, our stockholders could potentially be liable for any claims of creditors to the extent of distributions
received by them as an unlawful payment in the event we enter an insolvent liquidation. Furthermore, while we will seek to have
all vendors and service providers (which would include any third parties we engaged to assist us in any way in connection with
our search for a target business) and prospective target businesses execute agreements with us waiving any right, title, interest
or claim of any kind they may have in or to any monies held in the trust account, there is no guarantee that they will execute
such agreements. Nor is there any guarantee that, even if such entities execute such agreements with us, they will not seek recourse
against the trust account or that a court would conclude that such agreements are legally enforceable.
Each of our initial stockholders and
our Sponsor has agreed to waive its rights to participate in any liquidation of our trust account or other assets with respect
to the CHAC Shares and Private CHAC Warrants purchased in private placements and to vote their CHAC Shares in favor of any dissolution
and plan of distribution which we submit to a vote of stockholders. There will be no distribution from the trust account with
respect to our warrants or rights, which will expire worthless.
If
we are unable to complete an initial business combination and expend all of the net proceeds of the Initial Public Offering, other
than the proceeds deposited in the trust account, and without taking into account interest, if any, earned on the trust account,
the initial per-share distribution from the trust account would be $10.00.
The
proceeds deposited in the trust account could, however, become subject to the claims of our creditors which would be prior to
the claims of our public stockholders. Although we will seek to have all vendors, including lenders for money borrowed, prospective
target businesses or other entities we engage execute agreements with us waiving any right, title, interest or claim of any kind
in or to any monies held in the trust account for the benefit of our public stockholders, there is no guarantee that they will
execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the
trust account, including but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims,
as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with a claim against
our assets, including the funds held in the trust account. If any third party refused to execute an agreement waiving such claims
to the monies held in the trust account, we would perform an analysis of the alternatives available to us if we chose not to engage
such third party and evaluate if such engagement would be in the best interest of our stockholders if such third party refused
to waive such claims. Examples of possible instances where we may engage a third party that refused to execute a waiver include
the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly
superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a provider
of required services willing to provide the waiver. In any event, our management would perform an analysis of the alternatives
available to it and would only enter into an agreement with a third party that did not execute a waiver if management believed
that such third party’s engagement would be significantly more beneficial to us than any alternative. In addition, there
is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of,
any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason.
Our
Sponsor has agreed that, if we liquidate the trust account prior to the consummation of a business combination, he will be liable
to pay debts and obligations to target businesses or vendors or other entities that are owed money by us for services rendered
or contracted for or products sold to us in excess of the net proceeds of the Initial Public Offering not held in the trust account,
but only to the extent necessary to ensure that such debts or obligations do not reduce the amounts in the trust account and only
if such parties have not executed a waiver agreement. However, we cannot assure you that he will be able to satisfy those obligations
if he is required to do so. Accordingly, the actual per-share distribution could be less than $10.00 due to claims of creditors.
Additionally, if we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed,
the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate
and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims
deplete the trust account, we cannot assure you we will be able to return to our public stockholders at least $10.00 per share.
Facilities
We
maintain our principal executive offices at 17 State St, 21st Floor, New York, NY 10004. Our Sponsor is providing us this space
free of charge. We consider our current office space adequate for our current operations.
Employees
We
have three executive officers. These individuals are not obligated to devote any specific number of hours to our matters and intend
to devote only as much time as they deem necessary to our affairs. The amount of time they will devote in any time period will
vary based on whether a target business has been selected for the business combination and the stage of the business combination
process the company is in. Accordingly, once management locates a suitable target business to acquire, they will spend more time
investigating such target business and negotiating and processing the business combination (and consequently spend more time to
our affairs) than they would prior to locating a suitable target business. We presently expect our executive officers to devote
such amount of time as they reasonably believe is necessary to our business (which could range from only a few hours a week while
we are trying to locate a potential target business to a majority of their time as we move into serious negotiations with a target
business for a business combination). We do not intend to have any full time employees prior to the consummation of a business
combination.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT PRIOR TO THE BUSINESS COMBINATION
The following table sets
forth as of the Record Date the number of common stock beneficially owned by (i) each person who is known by us to be the beneficial
owner of more than five percent of our issued and outstanding common stock (ii) each of our officers and directors; and (iii)
all of our officers and directors as a group. As of the Record Date, we had 8,750,000 shares of common stock issued and outstanding.
Unless otherwise indicated,
we believe that all persons named in the table have sole voting and investment power with respect to all common stock beneficially
owned by them. The following table does not reflect record of beneficial ownership of any common stock issuable upon exercise
of the warrants, as the warrants are not exercisable within 60 days of the Record Date.
Name
and Address of Beneficial Owner(1)
|
|
Amount and Nature of Beneficial
Ownership of Common Stock
|
|
|
Approximate Percentage
of Outstanding Shares of Common Stock
|
|
Gbola Amusa
|
|
|
0
|
|
|
|
0
|
|
Jonas Grossman
|
|
|
1,707,500
|
(2)
|
|
|
19.5
|
%
|
George Kaufman
|
|
|
0
|
|
|
|
0
|
|
Michael Rice
|
|
|
7,500
|
|
|
|
*
|
|
Richard Giroux
|
|
|
7,500
|
|
|
|
*
|
|
Matthew Rossen
|
|
|
7,500
|
|
|
|
*
|
|
Eric Kusseluk MD
|
|
|
7,500
|
|
|
|
*
|
|
All officers and directors as a group (7 individuals)
|
|
|
1,737,500
|
|
|
|
19.8
|
%
|
Chardan Investments,
LLC (3)
|
|
|
1,707,500
|
|
|
|
19.5
|
%
|
Boothbay Absolute
Return Strategies LP(4)
|
|
|
489,000
|
|
|
|
5.5
|
%
|
Boothbay Fund Management, LLC(4)
|
|
|
489,000
|
|
|
|
5.5
|
%
|
Ari Glass(4)
|
|
|
489,000
|
|
|
|
5.5
|
%
|
RTW Investments, LP
|
|
|
600,000
|
|
|
|
6.8
|
%
|
RTW Master Fund, Ltd.
|
|
|
500,202
|
|
|
|
5.7
|
%
|
Roderick Wong
|
|
|
600,000
|
|
|
|
6.8
|
%
|
(1)
|
Unless
otherwise indicated, the business address of each of the individuals is c/o Chardan Healthcare
Acquisition Corp., 17 State Street, 21st Floor, New York, NY 10004.
|
(2)
|
Consists
of shares of common stock owned by Chardan Investments, LLC, for which Jonas Grossman
is the managing member.
|
(3)
|
Jonas
Grossman is the managing member of Chardan Investments, LLC.
|
(4)
|
Based
on a Schedule 13G filed by the reporting persons. The address for the reporting persons is 810 7th Avenue, Suite 615, New
York, NY 10019. The shares of common stock are held by Boothbay Absolute Return Strategies LP, a Delaware limited partnership
(the “Fund”), which is managed by Boothbay Fund Management, LLC, a Delaware limited liability company (the “Adviser”).
The Adviser, in its capacity as the investment manager of the Fund, has the power to vote and the power to direct the disposition
of all shares of common stock held by the Fund. Ari Glass is the Managing Member of the Adviser.
|
(5)
|
Based
on a Schedule 13G filed by the reporting persons. The address for the reporting persons is 412 West 15th Street, 16th Floor,
New York, NY 10004. The shares of common stock are held by RTW Master Fund, Ltd. and one or more other funds (together the
“Funds”), which are managed by RTW Investments, LP (the “Adviser”). The Adviser, in its capacity as
the investment manager of Funds, has the power to vote and the power to direct the disposition of all Units held by the Funds.
Roderick Wong is the Managing Partner of the Adviser.
|
SECURITY
OWNERSHIP OF THE COMBINED COMPANY AFTER THE BUSINESS COMBINATION
The following table sets
forth information regarding the beneficial ownership of CHAC’s common stock and preferred shares immediately after the consummation
of the Business Combination by:
|
●
|
each
person known to CHAC who will be the beneficial owner of more than 5% of any class of
its stock immediately after the Business Combination;
|
|
●
|
each
of its officers and directors; and
|
|
●
|
all
of its officers and directors as a group.
|
Unless
otherwise indicated, CHAC believes that all persons named in the table will have, immediately after the consummation of the Business
Combination, sole voting and investment power with respect to all CHAC securities beneficially owned by them.
Beneficial ownership is
determined in accordance with SEC rules and includes voting or investment power with respect to securities. Except as indicated
by the footnotes below, CHAC believes, based on the information furnished to it as of the Record Date, that the persons and entities
named in the table below will have, immediately after the consummation of the Business Combination, sole voting and investment
power with respect to all stock that they beneficially own, subject to applicable community property laws. All CHAC stock subject
to options or warrants exercisable within 60 days of the Record Date are deemed to be outstanding and beneficially owned by the
persons holding those options or warrants for the purpose of computing the number of shares beneficially owned and the percentage
ownership of that person. They are not, however, deemed to be outstanding and beneficially owned for the purpose of computing
the percentage ownership of any other person.
Subject
to the paragraph above, percentage ownership of outstanding shares is based on 23,777,781 shares of common stock of CHAC to be
outstanding upon consummation of the Business Combination (which excludes 1,597,219 shares issued subject to options and warrants).
The table below assumes that no CHAC Shares have been redeemed.
Name
and Address of Beneficial Owner(1)
|
|
Amount
and Nature of Beneficial
Ownership
|
|
|
Percent
of
Class
|
|
Takeda Pharmaceutical Company Limited
Takeda Ventures, Inc.(2)
|
|
|
2,426,670
|
|
|
|
10.2
|
%
|
OrbiMed Advisors Israel Limited
OrbiMed Israel GP Ltd.
OrbiMed Israel Partners, Limited Partnership(3)
|
|
|
2,249,458
|
|
|
|
9.5
|
%
|
Johnson & Johnson Innovation –
JJDC, Inc.(4)
|
|
|
2,095,183
|
|
|
|
8.8
|
%
|
Jonathan Solomon(5)
|
|
|
289,602
|
|
|
|
1.2
|
%
|
Assaf Oron(6)
|
|
|
113,222
|
|
|
|
*
|
|
Myriam Golembo(7)
|
|
|
21,289
|
|
|
|
*
|
|
Gbola Amusa(8)
|
|
|
527,862
|
|
|
|
2.2
|
%
|
Yaron Breski
|
|
|
0
|
|
|
|
*
|
|
Erez Chimovitz
|
|
|
0
|
|
|
|
*
|
|
Jonas Grossman(9)
|
|
|
1,014,101
|
|
|
|
4.1
|
%
|
Robbie Woodman
|
|
|
0
|
|
|
|
*
|
|
All directors and officers as a group (Post-Business
Combination)
(11 persons)
|
|
|
1,957,075
|
|
|
|
7.6
|
%
|
|
(1)
|
Unless
otherwise indicated, the business address of each of the individuals is c/o BiomX Ltd.,
7 Pinhas Sapir St., Floor 2, Ness Ziona 7414002, Israel.
|
|
(2)
|
The business address of Takeda Ventures, Inc. (“Takeda Ventures”) is 435 Tasso Street, Suite
300, Palo Alto, CA 94301 USA. Takeda Ventures is a wholly-owned direct subsidiary of Takeda Pharmaceuticals U.S.A., Inc. (“Takeda
USA”). Takeda Pharmaceuticals International AG and Takeda Pharmaceutical Company Limited together own 100% of Takeda USA.
Takeda Pharmaceuticals International AG is a wholly-owned direct subsidiary of Takeda Pharmaceutical Company Limited. As a result,
Takeda Pharmaceutical Company Limited may be deemed to have voting and investment power over all of the shares of common stock
held by Takeda Ventures, and Takeda Pharmaceutical Company Limited may be deemed to be the indirect beneficial owner of the shares
held by Takeda Ventures.
|
|
(3)
|
Represents
1,608,122 shares of common stock held directly by OrbiMed Israel Partners, Limited Partnership (“OIP LP”) and
641,336 shares of common stock held directly by OrbiMed Israel Incubator L.P. (“OII LP”). 89 Medinat Hayehudim
St.,
Building
E,
Herzliya
4614001
Israel. OrbiMed Israel BioFund GP Limited Partnership (“BioFund GP LP”) is the general partner of each of OIP LP
and OII LP, and OrbiMed Israel GP Ltd. (“Israel GP”) is the general partner of BioFund GP LP. OrbiMed Advisors
Israel Limited (“Advisors Israel Ltd”) is the majority shareholder of Israel GP. As a result, Advisors Israel
Ltd
and Israel GP may be deemed to have shared voting and investment power over all of the shares of common stock held by each
of
OIP LP and OII LP, and both Advisors Israel Ltd and Israel GP may be deemed to directly or indirectly, including by reason
of
their mutual affiliation, to be the beneficial owners of the shares held by each of OIP LP and OII LP. Advisors Israel Ltd
exercises this investment power through an investment committee comprised of Carl L. Gordon, Jonathan T. Silverstein, Nissim
Darvish, Anat Naschitz, and Erez Chimovits, each of whom disclaims beneficial ownership of the shares held by OIP LP and OII
LP.
|
|
(4)
|
The address for Johnson & Johnson Innovation-JJDC, Inc. (“JJDC”) is 410 George Street,
New Brunswick, New Jersey 08901. JJDC has voting and dispositive power over 2,095,183 shares of common stock.
|
|
(5)
|
Amount
represents 280,602 options that will be exercisable upon consummation of the Business
Combination.
|
|
(6)
|
Amount
represents 113,222 options that will be exercisable upon consummation of the Business
Combination.
|
|
(7)
|
Amount
represents 21,289 options that will be exercisable upon consummation of the Business
Combination.
|
|
(8)
|
Mr.
Amusa’s business address is c/o Chardan Healthcare Acquisition Corp., 17 State
Street, 21st Floor, New York, NY 10004. Amount includes exercisable warrants to purchase
276,190 shares of common stock.
|
|
(9)
|
Mr.
Grossman’s business address is c/o Chardan Healthcare Acquisition Corp., 17 State
Street, 21st Floor, New York, NY 10004. Amount includes shares of common stock and exercisable
warrants to purchase 666,310 shares of common stock owned by Chardan Investments, LLC,
for which Mr. Grossman is the managing member.
|
CERTAIN
TRANSACTIONS
Certain
Transactions of CHAC
Insider
Shares
In
March 2018, our Sponsor purchased an aggregate of 1,437,500 shares for an aggregate purchase price of $25,000. On September 14,
2018, we effected a 1.4 for 1 dividend in the nature of a stock split that resulted in there being an aggregate of 2,012,500 shares
outstanding (resulting in a purchase price of approximately $0.012).
Mountain Wood, LLC, an affiliate of
our Sponsor, purchased from us an aggregate of 2,900,000 warrants, or “Private CHAC Warrants,” at $0.40 per Private
CHAC Warrant (for a total purchase price of $1,160,000), with each warrant exercisable for one share of common stock at an exercise
price of $11.50 per share simultaneously with the closing of our Initial Public Offering.
The holders of our insider shares issued
and outstanding on the date of our Initial Public Offering, as well as the holders of the Private CHAC Warrants (and all underlying
securities) and any securities our initial stockholders, officers, directors or their affiliates may be issued in payment of working
capital loans made to us, will be entitled to registration rights pursuant to an agreement signed by us in connection with our
Initial Public Offering. The holders of a majority of these securities are entitled to make up to two demands that we register
such securities. The holders of the majority of the insider shares can elect to exercise these registration rights at any time
commencing three months prior to the date on which these shares of common stock are to be released from escrow. The holders of
a majority of the CHAC Shares issued to our Sponsor prior to the Initial Public Offering or securities issued in payment of working
capital loans made to us can elect to exercise these registration rights at any time after we consummate a business combination.
In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed
subsequent to our consummation of a business combination. We will bear the expenses incurred in connection with the filing of
any such registration statements.
As of December 13, 2018, the Sponsor had
loaned CHAC a total of $105,500 for costs associated with the Initial Public Offering. CHAC repaid the loans and advances from
the proceeds of the Initial Public Offering.
Related
Party Policy
Our
Code of Ethics requires us to avoid, wherever possible, all related party transactions that could result in actual or potential
conflicts of interests, except under guidelines approved by the Board of Directors (or the audit committee). Related-party transactions
are defined as transactions in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar
year, (2) we or any of our subsidiaries is a participant, and (3) any (a) executive officer, director or nominee for election
as a director, (b) greater than 5% beneficial owner of our common stock, or (c) immediate family member, of the persons referred
to in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely as a result of being a director
or a less than 10% beneficial owner of another entity). A conflict of interest situation can arise when a person takes actions
or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts of interest may
also arise if a person, or a member of his or her family, receives improper personal benefits as a result of his or her position.
Our
audit committee, pursuant to its written charter, is responsible for reviewing and approving related-party transactions to the
extent we enter into such transactions. All ongoing and future transactions between us and any of our officers and directors or
their respective affiliates will be on terms believed by us to be no less favorable to us than are available from unaffiliated
third parties. Such transactions will require prior approval by our audit committee and a majority of our uninterested “independent”
directors, or the members of our Board of Directors who do not have an interest in the transaction, in either case who had access,
at our expense, to our attorneys or independent legal counsel. We will not enter into any such transaction unless our audit committee
and a majority of our disinterested “independent” directors determine that the terms of such transaction are no less
favorable to us than those that would be available to us with respect to such a transaction from unaffiliated third parties. Additionally,
we require each of our directors and executive officers to complete a directors’ and officers’ questionnaire that
elicits information about related party transactions.
These
procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents
a conflict of interest on the part of a director, employee or officer.
To
further minimize potential conflicts of interest, we have agreed not to consummate a business combination with an entity which
is affiliated with any of our initial stockholders unless we obtain an opinion from an independent investment banking firm that
the Business Combination is fair to our unaffiliated stockholders from a financial point of view. Furthermore, in no event will
any of our existing officers, directors or initial stockholders, or any entity with which they are affiliated, be paid any finder’s
fee, consulting fee or other compensation prior to, or for any services they render in order to effectuate, the consummation of
a business combination.
Certain
Transactions of BiomX
Janssen
Agreement
On
October 31, 2018, BiomX entered into a research collaboration agreement (the “Janssen Agreement”) with Janssen, an
affiliate of BiomX shareholder Johnson & Johnson Development Corporation, for a collaboration on biomarker discovery for IBD. Under the Janssen Agreement, BiomX is eligible to receive fees totaling $167,000 in installments $50,000 within
60 days of signing of the agreement, $17,000 upon completion of data processing, and two installments of $50,000 each, upon delivery
of Signature Phase I of the Final Study Report (both terms as defined within the Janssen Agreement). Unless terminated earlier,
the Janssen Agreement will continue in effect until 30 days after the parties complete the research program and BiomX provides
Janssen with a final study report.
Indemnification
Agreement
BiomX entered into an indemnification
agreement with FutuRx Ltd. on December 13, 2017. According to the agreement, the aggregate amount of the indemnification shall
not exceed an aggregate of NIS 2,295,000, or approximately $646,340. In addition, the indemnification is limited to liability
in connection with BiomX’s compliance with the IIA regulations, and such indemnification undertakings shall be in addition
to any other indemnification obligations under which BiomX is bound.
Shareholder
Loans
BiomX has committed to
enter and entered into loan agreements in an aggregate amount of up to $1.9 million with certain of its shareholders who are subject
to taxation in Israel, pursuant to which BiomX will extend to such shareholders loans for the purpose of paying Israeli capital
gain taxes payable by them in connection with the issuance to them of CHAC Shares in exchange for their BiomX shares upon consummation
of the Business Combination. The loans are for two years, are non-recourse and are secured by CHAC Shares issued to them that
have a value (based on $10 per share, the attributed price of the CHAC Shares immediately prior to such issuance) that equals
three times the loan amount. If any of such shareholders defaults on such loan, BiomX will have the right to forfeit or sell such
number of CHAC Shares as have a value equal to the amount of the loan (plus interest accrued thereon) not timely repaid, based
on their market price at the time of such forfeiture or sale.
DESCRIPTION
OF CHAC’S SECURITIES
General
Our Amended and Restated Certificate
of Incorporation currently authorizes the issuance of 30,000,000 shares of common stock, par value $0.0001, and 1,000,000 shares
of preferred stock, par value $0.0001. As of the record date, 2,012,500 shares of common stock are issued and outstanding, held
our Sponsor, our directors, and affiliates of our management team. No preferred shares are issued or outstanding.
Units
Each unit consists of one share of common
stock and one warrant. Each warrant entitles the holder thereof to purchase one-half (1/2) of a share of common stock at a price
of $11.50 per whole share, subject to adjustment as described herein. Each warrant will become exercisable on the later of
December 18, 2019 or the closing of a business combination, and will expire five years after the completion of an initial business
combination, or earlier upon redemption. Pursuant to the warrant agreement, a warrantholder may exercise its warrants only
for a whole number of shares. This means that only an even number of public warrants may be exercised at any given time by a warrantholder.
For example, if a warrant holder holds one public warrant to purchase one-half (½) of one share, such warrant shall not
be exercisable. If a warrantholder holds two public warrants, such public warrants will be exercisable for one share.
Common
Stock
Our
holders of record of our common stock are entitled to one vote for each share held on all matters to be voted on by stockholders.
In connection with any vote held to approve our initial business combination, our insiders, officers and directors, have agreed
to vote their respective shares of common stock owned by them, in favor of the proposed business combination.
Pursuant
to our Amended and Restated Certificate of Incorporation, if we do not consummate our initial business combination by December
18, 2020, 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 100% of the outstanding public shares, which redemption will completely extinguish
public stockholders’ rights as stockholders (including the right to receive further liquidation 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 of Directors, dissolve and liquidate, subject (in the case of (ii) and (iii) above) to
our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. Our insiders
have agreed to waive their rights to share in any distribution with respect to their insider shares.
Our stockholders
have no conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable
to the shares of common stock, except that public stockholders have the right to sell their shares to us in any tender offer or
have their shares of common stock converted to cash equal to their pro rata share of the trust account if they vote on the proposed
business combination and the business combination is completed. If we hold a stockholder vote to amend any provisions of our Amended
and Restated Certificate of Incorporation relating to stockholder’s rights or pre-business combination activity (including
the substance or timing within which we have to complete a business combination), we will provide our public stockholders with
the opportunity to redeem their shares of common stock upon approval of any such amendment 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, divided by the number of then outstanding public shares,
in connection with any such vote. In either of such events, converting stockholders would be paid their pro rata portion of the
trust account promptly following consummation of the business combination or the approval of the amendment to the Amended and
Restated Certificate of Incorporation. If the business combination is not consummated or the amendment is not approved, stockholders
will not be paid such amounts.
Preferred
Stock
There
are no shares of preferred stock outstanding. Our Amended and Restated Certificate of Incorporation filed with the State of Delaware
authorizes the issuance of 1,000,000 shares of preferred stock with such designation, rights and preferences as may be determined
from time to time by our Board of Directors. Accordingly, our Board of Directors is empowered, without stockholder approval, to
issue preferred stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power
or other rights of the holders of common stock. However, the underwriting agreement prohibits us, prior to a business combination,
from issuing preferred stock which participates in any manner in the proceeds of the trust account, or which votes as a class
with the common stock on our initial business combination. We may issue some or all of the preferred stock to effect our initial
business combination. In addition, the preferred stock could be utilized as a method of discouraging, delaying or preventing a
change in control of us. Although we do not currently intend to issue any shares of preferred stock, we reserve the right to do
so in the future.
Warrants
Each public CHAC Warrant entitles the
registered holder to purchase one-half (1/2) of a CHAC Share at a price of $11.50 per whole share, subject to adjustment as discussed
below, at any time commencing on the later of December 18, 2019 and the consummation of an initial business combination. Pursuant
to the warrant agreement, a warrantholder may exercise its warrants only for a whole number of shares. This means that only an
even number of public CHAC Warrants may be exercised at any given time by a warrantholder. However, no public CHAC warrants will
be exercisable for cash unless we have an effective and current registration statement covering the CHAC Shares issuable upon
exercise of the public CHAC Warrants and a current prospectus relating to such CHAC Shares. Notwithstanding the foregoing, if
a registration statement covering the CHAC Shares issuable upon exercise of the public CHAC Warrants is not effective within 120
days from the closing of our initial business combination, warrant holders may, until such time as there is an effective registration
statement and during any period when we shall have failed to maintain an effective registration statement, exercise warrants on
a cashless basis pursuant to an available exemption from registration under the Securities Act. The warrants will expire five
years from the closing of our initial business combination at 5:00 p.m., New York City time.
The Private CHAC Warrants are identical
to the public CHAC Warrants underlying the units issued in our Initial Public Offering except that (i) each Private CHAC
Warrant is exercisable for one CHAC Share at an exercise price of $11.50 per share, and (ii) such Private CHAC Warrants are
exercisable for cash (even if a registration statement covering the CHAC Shares issuable upon exercise of such warrants is not
effective) or on a cashless basis, at the holder’s option, and will not be redeemable by us, in each case so long as they
are still held by the initial purchasers or their affiliates.
We may call the outstanding public CHAC
Warrants for redemption (excluding the Private CHAC Warrants), in whole and not in part, at a price of $.01 per warrant:
|
●
|
at
any time while the warrants are exercisable,
|
|
●
|
upon
not less than 30 days’ prior written notice of redemption to each warrant holder,
|
|
●
|
if,
and only if, the reported last sale price of the shares of common stock equals or exceeds
$16.00 per share, for any 20 trading days within a 30-day trading period ending on the
third business day prior to the notice of redemption to warrant holders, and
|
|
●
|
if,
and only if, there is a current registration statement in effect with respect to the
shares of common stock underlying such warrants at the time of redemption and for the
entire 30-day trading period referred to above and continuing each day thereafter until
the date of redemption.
|
The
right to exercise will be forfeited unless the warrants are exercised prior to the date specified in the notice of redemption.
On and after the redemption date, a record holder of a warrant will have no further rights except to receive the redemption price
for such holder’s warrant upon surrender of such warrant.
There are no restrictions or requirements
in CHAC’s bylaws concerning the ownership or control by CHAC stockholders of a target company post-business combination.
In the case of the Business Combination with BiomX, the following table shows the impact of the public CHAC Warrants and Private
CHAC Warrants on the total pro forma total stockholdings of the combined company after the Business Combination at the three earnout
levels negotiated in the Merger Agreement.
Pro Forma Shares (millions) and Percent Ownership at
Various Earnout Levels
|
Pro forma price per share
|
|
$10.00
|
|
|
$16.50
|
|
|
$22.75
|
|
|
$29.00
|
|
|
|
Shares
|
|
|
%
|
|
|
Shares
|
|
|
%
|
|
|
Shares
|
|
|
%
|
|
|
Shares
|
|
|
%
|
|
BiomX Shareholders
|
|
|
18.625
|
|
|
|
|
|
|
|
18.625
|
|
|
|
|
|
|
|
18.625
|
|
|
|
|
|
|
|
18.625
|
|
|
|
|
|
Earnout Shares, cumulative
|
|
|
|
|
|
|
|
|
|
|
2.000
|
|
|
|
|
|
|
|
4.000
|
|
|
|
|
|
|
|
6.000
|
|
|
|
|
|
BiomX Shareholders, Total
|
|
|
18.625
|
|
|
|
73
|
%
|
|
|
20.625
|
|
|
|
70
|
%
|
|
|
22.625
|
|
|
|
70
|
%
|
|
|
24.625
|
|
|
|
70
|
%
|
CHAC Public Stockholders (a)
|
|
|
5.000
|
|
|
|
20
|
%
|
|
|
6.061
|
|
|
|
21
|
%
|
|
|
6.731
|
|
|
|
21
|
%
|
|
|
7.112
|
|
|
|
20
|
%
|
CHAC Sponsors (b)
|
|
|
1.750
|
|
|
|
7
|
%
|
|
|
2.629
|
|
|
|
9
|
%
|
|
|
3.184
|
|
|
|
10
|
%
|
|
|
3.500
|
|
|
|
10
|
%
|
Pro Forma Shares Outstanding
|
|
|
25.375
|
|
|
|
100
|
%
|
|
|
29.314
|
|
|
|
100
|
%
|
|
|
32.540
|
|
|
|
100
|
%
|
|
|
35.237
|
|
|
|
100
|
%
|
|
(a)
|
Assumes minimum cash provision is met at closing, no redemptions,
and effect of warrant exercise using treasury stock method to calculate net shares issued.
Gives effect to purchase by BiomX Shareholders of 2.000 million shares from CHAC Public
Stockholders at or prior to closing.
|
|
(b)
|
Giving effect to shares issued underlying Private CHAC Warrants using the treasury stock method to calculate net shares issued.
|
The
redemption criteria for our warrants have been established at a price which is intended to provide warrant holders a reasonable
premium to the initial exercise price and provide a sufficient differential between the then-prevailing share price and the warrant
exercise price so that if the share price declines as a result of our redemption call, the redemption will not cause the share
price to drop below the exercise price of the warrants.
If
we call the warrants for redemption as described above, our management will have the option to require all holders that wish to
exercise warrants to do so on a “cashless basis.” In such event, each holder would pay the exercise price by surrendering
the warrants for that number of shares of common stock equal to the quotient obtained by dividing (x) the product of the number
of shares of common stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and
the “fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean
the average reported last sale price of our common stock for the 10 trading days ending on the third trading day prior to the
date on which the notice of redemption is sent to the holders of warrants. Whether we will exercise our option to require all
holders to exercise their warrants on a “cashless basis” will depend on a variety of factors including the price of
our common shares at the time the warrants are called for redemption, our cash needs at such time and concerns regarding dilutive
share issuances.
The
warrants will be issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as
warrant agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any
holder to cure any ambiguity or correct any defective provision, but requires the approval, by written consent or vote, of the
holders of a majority of the then outstanding warrants in order to make any change that adversely affects the interests of the
registered holders.
The
exercise price and number of shares of common stock issuable on exercise of the warrants may be adjusted in certain circumstances
including in the event of a share dividend, extraordinary dividend or our recapitalization, reorganization, merger or consolidation.
However, the warrants will not be adjusted for issuances of shares of common stock at a price below their respective exercise
prices.
The
warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant
agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied
by full payment of the exercise price, by certified or official bank check payable to us, for the number of warrants being exercised.
The warrant holders do not have the rights or privileges of holders of shares of common stock and any voting rights until they
exercise their warrants and receive shares of common stock. After the issuance of shares of common stock upon exercise of the
warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders.
Except
as described above, no public warrants will be exercisable for cash and we will not be obligated to issue shares of common stock
unless at the time a holder seeks to exercise such warrant, a prospectus relating to the shares of common stock issuable upon
exercise of the warrants is current and the shares of common stock have been registered or qualified or deemed to be exempt under
the securities laws of the state of residence of the holder of the warrants. Under the terms of the warrant agreement, we have
agreed to use our best efforts to meet these conditions and to maintain a current prospectus relating to the shares of common
stock issuable upon exercise of the warrants until the expiration of the warrants. However, we cannot assure you that we will
be able to do so and, if we do not maintain a current prospectus relating to the shares of common stock issuable upon exercise
of the warrants, holders will be unable to exercise their warrants and we will not be required to settle any such warrant exercise.
If the prospectus relating to the shares of common stock issuable upon the exercise of the warrants is not current or if the common
stock is not qualified or exempt from qualification in the jurisdictions in which the holders of the warrants reside, we will
not be required to net cash settle or cash settle the warrant exercise, the warrants may have no value, the market for the warrants
may be limited and the warrants may expire worthless.
Warrant
holders may elect to be subject to a restriction on the exercise of their warrants such that an electing warrant holder would
not be able to exercise their warrants to the extent that, after giving effect to such exercise, such holder would beneficially
own in excess of 9.9% of the shares of common stock outstanding.
No
fractional shares will be issued upon exercise of the warrants. If, upon exercise of the warrants, a holder would be entitled
to receive a fractional interest in a share, we will, upon exercise, round down to the nearest whole number the number of common
stock to be issued to the warrant holder.
Contractual Arrangements with respect to the Private
CHAC Warrants
We have agreed that so long as the Private
CHAC Warrants are still held by the initial purchasers or their affiliates, we will not redeem such warrants and we will allow
the holders to exercise such warrants on a cashless basis (even if a registration statement covering the shares of common stock
issuable upon exercise of such warrants is not effective). However, once any of the foregoing warrants are transferred from the
initial purchasers or their affiliates, these arrangements will no longer apply. Furthermore, because the Private CHAC Warrants
will be issued in a private transaction, the holders and their transferees will be allowed to exercise the Private CHAC Warrants
for cash even if a registration statement covering the shares of common stock issuable upon exercise of such warrants is not effective
and receive unregistered shares of common stock.
Our
Transfer Agent and Warrant Agent
The
transfer agent for our shares of common stock and warrant agent for our warrants is Continental Stock Transfer & Trust Company,
17 Battery Place, New York, New York 10004.
Certain
Anti-Takeover Provisions of Delaware Law and our Amended and Restated Certificate of Incorporation and By-Laws
We
are subject to the provisions of Section 203 of the DGCL regulating corporate takeovers. This statute prevents certain Delaware
corporations, under certain circumstances, from engaging in a “business combination” with:
|
●
|
a
stockholder who owns 10% or more of our outstanding voting stock (otherwise known as
an “interested stockholder”);
|
|
●
|
an
affiliate of an interested stockholder; or
|
|
●
|
an
associate of an interested stockholder, for three years following the date that the stockholder
became an interested stockholder.
|
A
“business combination” includes a merger or sale of more than 10% of our assets. However, the above provisions of
Section 203 do not apply if:
|
●
|
our
Board of Directors approves the transaction that made the stockholder an “interested
stockholder,” prior to the date of the transaction;
|
|
●
|
after
the completion of the transaction that resulted in the stockholder becoming an interested
stockholder, that stockholder owned at least 85% of our voting stock outstanding at the
time the transaction commenced, other than statutorily excluded shares of common stock;
or
|
|
●
|
on
or subsequent to the date of the transaction, the business combination is approved by
our Board of Directors and authorized at a meeting of our stockholders, and not by written
consent, by an affirmative vote of at least two-thirds of the outstanding voting stock
not owned by the interested stockholder.
|
Special
meeting of stockholders
Our
bylaws provide that special meetings of our stockholders may be called only by a majority vote of our Board of Directors, by our
chief executive officer or by our chairman.
Advance
notice requirements for stockholder proposals and director nominations
Our
bylaws provide that stockholders seeking to bring business before our annual meeting of stockholders, or to nominate candidates
for election as directors at our annual meeting of stockholders must provide timely notice of their intent in writing. To be timely,
a stockholder’s notice will need to be delivered to our principal executive offices not later than the close of business
on the 90th day nor earlier than the opening of business on the 120th day prior to the scheduled date of the annual meeting of
stockholders. Our bylaws also specify certain requirements as to the form and content of a stockholders’ meeting. These
provisions may preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations
for directors at our annual meeting of stockholders.
Authorized
but unissued shares
Our
authorized but unissued common stock and preferred stock are available for future issuances without stockholder approval and could
be utilized for a variety of corporate purposes, including future offerings to raise additional capital, acquisitions and employee
benefit plans. The existence of authorized but unissued and unreserved common stock and preferred stock could render more difficult
or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
EXPERTS
The financial statements of BiomX Ltd.,
included in this Proxy Statement have been audited by Brightman Almagor Zohar & Co,, an independent registered public accounting
firm, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The
audited financial statements of CHAC. as of June 30, 2019 and 2018, for year ended June 30, 2019 and for the period from November
1, 2017 (inception) through June 30, 2018 are incorporated by reference in this proxy statement/prospectus, have been audited
by Marcum LLP, an independent registered public accounting firm, as set forth in their report, herein given on the authority of
said firm, as experts in auditing and accounting.
STOCKHOLDER
PROPOSALS AND OTHER MATTERS
Stockholders who wish to present proposals
for inclusion in the Company’s proxy materials for the next annual meeting of Stockholders may do so by following the procedures
prescribed in Rule 14a-8 under the Securities Exchange Act of 1934, as amended. The next annual meeting date is unknown at this
time. Once a tentative date is set by the Company’s Board of Directors, it will be disclosed in a subsequent quarterly report
on Form 10-Q or current report on Form 8-K filed by the Company, which will also include the time period within which shareholder
proposals must be submitted to the Company in order to be considered for inclusion in the Company’s proxy materials for
that meeting. Under SEC rules, you must have continuously held for at least one year prior to the submission of the proposal (and
continue to hold through the date of the meeting) at least $2,000 in market value, or 1%, of our outstanding stock in order to
submit a proposal which you seek to have included in the Company’s proxy materials. We may, subject to SEC review and guidelines,
decline to include any proposal in our proxy materials.
Stockholders who wish to make a proposal
at the next annual meeting, other than one that will be included in our proxy materials, must notify us a reasonable time before
the Company mails the proxy statement for the next annual meeting, however, if a stockholder fails to notify us of a proposal
a reasonable time before the proxy statement is mailed, the proxies that management solicits for the meeting will confer discretionary
authority to vote on the stockholder’s proposal if it is properly brought before the meeting.
Management of CHAC knows of no other matters
which may be brought before the CHAC special meeting. If any matter other than the Proposals described in this proxy statement
should properly come before the special meeting, however, the persons named in the enclosed proxies will vote proxies in accordance
with their judgment on those matters.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
CHAC is subject to the informational
requirements of the Exchange Act, and is required to file reports, proxy statements and other information with the SEC. You can
read CHAC’s SEC filings, including this proxy statement, over the Internet at the SEC’s website at http://www.sec.gov.
The SEC’s rules allow the Company
to “incorporate by reference” information into this proxy statement, which means that we can disclose important information
to you by referring you to another document filed separately with the SEC. The information incorporated by reference is deemed
to be part of this proxy statement from the date those documents are filed, except for any information superseded by information
contained directly in this proxy statement. The Company has filed the documents listed below with the SEC under the Exchange Act,
and these documents are incorporated herein by reference:
|
●
|
The
financial statements of CHAC for the nine months ended March 31, 2019 are incorporated herein by reference to pages 1-11 of CHAC’s
Quarterly Report on Form 10-Q filed with the SEC on May 10, 2019.
|
|
●
|
The financial statements
of CHAC for the year ended June 30, 2019 are incorporated herein by reference to pages F-1 – F-15 of CHAC’s Annual
Report on Form
10-K filed with the SEC on August 21, 2019.
|
|
●
|
The
financial statements of CHAC for the period from November 1, 2017 (inception) through June 30, 2018 are incorporated herein by
reference to pages F-1 – F-14 of CHAC’s Registration Statement on Form S-1 filed with the SEC on December 7, 2018.
|
You may request a copy of this proxy statement,
the documents attached as annexes to this proxy statement or the documents incorporated by reference into the proxy statement,
excluding all exhibits unless specifically incorporated by reference into such documents, by writing to or calling us at the following
address and telephone number and we will provide the requested documents to you without charge:
Chardan Healthcare
Acquisition Corp.
17 State St., Floor 21
New York, NY 10004
Attn: Jonas Grossman
Telephone: (646) 465-9000
You may also obtain these documents
by requesting them in writing or by telephone from the Company’s proxy solicitation agent at the following address and telephone
number:
Morrow Sodali
470 West Avenue, 3rd Floor
Stamford, Connecticut 06902
Individuals, please call toll-free:
(800) 662-5200
Banks and brokerage, please call: (203)
658-9400
Email: CHAC.info@morrowco.com
If you are a stockholder of CHAC
and would like to request documents, please do so by October 21, 2019, in order to receive them before the special meeting.
If you request any documents from us, we will mail them to you by first class mail, or another equally prompt means within one
business day of receipt of y request.
All information contained in this proxy
statement relating to CHAC has been supplied by CHAC, and all such information relating to BiomX has been supplied by BiomX. Information
provided by either CHAC or BiomX does not constitute any representation, estimate or projection of any other party.
This document is a proxy statement
of CHAC for the special meeting. Neither CHAC nor BiomX has authorized anyone to give any information or make any representation
about the Business Combination, CHAC or BiomX that is different from, or in addition to, that contained in this proxy statement.
Therefore, if anyone does give you information of this sort, you should not rely on it. The information contained in this proxy
statement speaks only as of the date of this proxy statement, unless the information specifically indicates that another date
applies.
This proxy statement does not constitute
an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to
or from any person to whom it is not lawful to make any such offer or solicitation in such jurisdiction.
BIOMX
LTD.
CONSOLIDATED
FINANCIAL STATEMENTS
CONTENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Shareholders and Board of Directors of BiomX Ltd.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of BiomX Ltd. (the “Company”) as of December 31, 2018 and
2017, the related consolidated statements of consolidated loss, changes in shareholders’ equity and cash flows for each
of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “financial
statements”).
In
our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2018 and 2017 and the results of its operations and its cash flows for each of the three years in the period ended December
31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/
Brightman Almagor Zohar & Co.
Certified
Public Accountants
A
Firm in the Deloitte Global Network
Tel
Aviv, Israel
July
17, 2019
We
have served as the Company’s auditor since 2015.
BIOMX
LTD.
INTERIM
CONSOLIDATED BALANCE SHEETS
USD
in thousands except share data
|
|
|
|
As of
|
|
|
|
Note
|
|
June 30,
2019
|
|
|
December 31, 2018
|
|
|
|
|
|
USD In thousands
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
16,145
|
|
|
|
8,604
|
|
Restricted cash
|
|
|
|
|
92
|
|
|
|
89
|
|
Short-term deposits
|
|
|
|
|
18,617
|
|
|
|
31,055
|
|
Other receivables
|
|
|
|
|
228
|
|
|
|
140
|
|
Total current assets
|
|
|
|
|
35,082
|
|
|
|
39,888
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
1,448
|
|
|
|
887
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease deposit
|
|
|
|
|
5
|
|
|
|
-
|
|
In-process research and development (“R&D”)
|
|
5
|
|
|
4,556
|
|
|
|
4,556
|
|
Operating lease right-of-use asset
|
|
3
|
|
|
594
|
|
|
|
-
|
|
Total non-current assets
|
|
|
|
|
5,155
|
|
|
|
4,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,685
|
|
|
|
45,331
|
|
The
accompanying notes are an integral part of these interim consolidated financial statements.
BIOMX
LTD.
INTERIM
CONSOLIDATED BALANCE SHEETS
USD
in thousands except share and per share data
|
|
|
|
As of
|
|
|
|
Note
|
|
June 30,
2019
|
|
|
December 31, 2018
|
|
|
|
|
|
USD In thousands
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
Short-term lease liabilities
|
|
3
|
|
|
202
|
|
|
|
-
|
|
Trade account payables
|
|
|
|
|
512
|
|
|
|
193
|
|
Other account payables
|
|
|
|
|
1,490
|
|
|
|
1,396
|
|
Related parties
|
|
|
|
|
33
|
|
|
|
50
|
|
Total current liabilities
|
|
|
|
|
2,237
|
|
|
|
1,639
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
Long-term lease liabilities
|
|
3
|
|
|
392
|
|
|
|
-
|
|
Contingent liabilities
|
|
4
|
|
|
903
|
|
|
|
889
|
|
Total non-current liabilities
|
|
|
|
|
1,295
|
|
|
|
889
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingent Liabilities
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares, NIS 0.01 par value (“Ordinary Shares”); Authorized
14,044,778 shares as of June 30, 2019 and December 31, 2018.Issued and outstanding 954,622 shares as of June 30, 2019 and
December 31, 2018.
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary A shares, NIS 0.01 par value (“Ordinary A Shares”);
Authorized 1,000,000 shares as of June 30, 2019 and December 31, 2018. Issued and outstanding 0 as of June 30, 2019 and December
31, 2018.
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred A shares, NIS 0.01 par value (“Preferred A Shares”);
Authorized 6,796,342 shares as of as of June 30, 2019 and December 31, 2018. Issued and outstanding 3,120,412 shares as of
as of June 30, 2019 and December 31, 2018.
|
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred B shares, NIS 0.01 par value (“Preferred B Shares”);
Authorized 2,836,880 shares as of June 30, 2019 and December 31, 2018. Issued and outstanding 2,266,314 shares as of June
30, 2019 and 2,138,654 shares as of December 31, 2018.
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
|
|
|
66,831
|
|
|
|
64,400
|
|
Accumulated deficit
|
|
|
|
|
(28,690
|
)
|
|
|
(21,609
|
)
|
Total shareholders’ equity
|
|
|
|
|
38,153
|
|
|
|
42,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,685
|
|
|
|
45,331
|
|
The
accompanying notes are an integral part of these interim consolidated financial statements.
BIOMX
LTD.
INTERIM
CONSOLIDATED STATEMENTS OF OPERATIONS
USD
in thousands except share and per share data
|
|
Three
months ended
June
30,
|
|
|
Six
months ended
June
30,
|
|
|
|
|
2019
|
|
|
|
2018
|
|
|
|
2019
|
|
|
|
2018
|
|
Research and development (“R&D”)
expenses, net
|
|
|
2,864
|
|
|
|
1,655
|
|
|
|
5,600
|
|
|
|
3,643
|
|
General and administrative expenses
|
|
|
1,203
|
|
|
|
788
|
|
|
|
2,190
|
|
|
|
1,435
|
|
Operating Loss
|
|
|
4,067
|
|
|
|
2,443
|
|
|
|
7,790
|
|
|
|
5,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expenses (income),
net
|
|
|
(289
|
)
|
|
|
229
|
|
|
|
(787
|
)
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
3,778
|
|
|
|
2,672
|
|
|
|
7,003
|
|
|
|
5,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per Ordinary Shares and Ordinary
A Shares
|
|
|
6.00
|
|
|
|
3.90
|
|
|
|
11.32
|
|
|
|
7.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of Ordinary
Shares and Ordinary A Shares outstanding, basic and diluted
|
|
|
829,361
|
|
|
|
829,361
|
|
|
|
829,361
|
|
|
|
827,228
|
|
The
accompanying notes are an integral part of these interim consolidated financial statements.
BIOMX
LTD.
INTERIM
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
USD
in thousands except share data
|
|
Ordinary
Shares
|
|
|
Preferred
A Shares
|
|
|
Preferred
B Shares
|
|
|
Additional
paid in
|
|
|
Accumulated
|
|
|
Total
shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2018
|
|
|
954,622
|
|
|
|
3
|
|
|
|
3,120,412
|
|
|
|
6
|
|
|
|
2,138,654
|
|
|
|
3
|
|
|
|
64,400
|
|
|
|
(21,609
|
)
|
|
|
42,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
127,660
|
|
|
|
(*
|
)
|
|
|
1,800
|
|
|
|
-
|
|
|
|
1,800
|
|
Share-based
payment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
304
|
|
|
|
-
|
|
|
|
304
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,225
|
)
|
|
|
(3,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of March 31, 2019
|
|
|
954,622
|
|
|
|
3
|
|
|
|
3,120,412
|
|
|
|
6
|
|
|
|
2,266,314
|
|
|
|
3
|
|
|
|
66,504
|
|
|
|
(24,834
|
)
|
|
|
41,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
payment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
327
|
|
|
|
-
|
|
|
|
327
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,778
|
)
|
|
|
(3,778
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of June 30, 2019
|
|
|
954,622
|
|
|
|
3
|
|
|
|
3,120,412
|
|
|
|
6
|
|
|
|
2,266,314
|
|
|
|
3
|
|
|
|
66,831
|
|
|
|
(28,612
|
)
|
|
|
38,231
|
|
|
(*)
|
Less
than $1 thousand.
|
The
accompanying notes are an integral part of these interim consolidated financial statements.
BIOMX
LTD.
INTERIM
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
USD
in thousands except share data
|
|
Ordinary
Shares
|
|
|
Ordinary
A Shares
|
|
|
Preferred
A Shares
|
|
|
Additional
paid in
|
|
|
Accumulated
|
|
|
Total
shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2017
|
|
|
653,613
|
|
|
|
3
|
|
|
|
288,212
|
|
|
|
(*
|
)
|
|
|
1,867,508
|
|
|
|
4
|
|
|
|
20,412
|
|
|
|
(8,889
|
)
|
|
|
11,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,252,904
|
|
|
|
2
|
|
|
|
12,998
|
|
|
|
-
|
|
|
|
13,000
|
|
Conversion
of shares
|
|
|
288,212
|
|
|
|
(*
|
)
|
|
|
(288,212
|
)
|
|
|
(*
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercise
of options
|
|
|
12,797
|
|
|
|
(*
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Share-based
payment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
212
|
|
|
|
-
|
|
|
|
212
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,706
|
)
|
|
|
(2,706
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of March 31, 2018
|
|
|
954,622
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,120,412
|
|
|
|
6
|
|
|
|
33,622
|
|
|
|
(11,595
|
)
|
|
|
22,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
payment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
243
|
|
|
|
-
|
|
|
|
243
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,672
|
)
|
|
|
2,672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of June 30, 2018
|
|
|
954,622
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,120,412
|
|
|
|
6
|
|
|
|
33,865
|
|
|
|
(14,267
|
)
|
|
|
19,607
|
|
|
(*)
|
Less
than $1 thousand.
|
The
accompanying notes are an integral part of these interim consolidated financial statements.
BIOMX
LTD.
INTERIM
CONSOLIDATED STATEMENTS OF CASH FLOWS
USD
in thousands
|
|
For the six months ended
June 30,
|
|
|
|
2 0 1 9
|
|
|
2 0 1 8
|
|
|
|
|
|
|
|
|
CASH FLOWS – OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(7,003
|
)
|
|
|
(5,378
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments required to reconcile cash flows used in operating activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
205
|
|
|
|
100
|
|
Share-based compensation
|
|
|
631
|
|
|
|
455
|
|
Revaluation of contingent liabilities
|
|
|
14
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Other receivables
|
|
|
(93
|
)
|
|
|
99
|
|
Trade account payables
|
|
|
319
|
|
|
|
(96
|
)
|
Other account payables
|
|
|
94
|
|
|
|
(149
|
)
|
Related parties
|
|
|
(95
|
)
|
|
|
-
|
|
Net cash used in operating activities
|
|
|
(5,928
|
)
|
|
|
(4,958
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS – INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Decrease (Increase) in short-term deposit
|
|
|
12,438
|
|
|
|
(1,350
|
)
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(766
|
)
|
|
|
(155
|
)
|
Net cash provided by (used in) investing activities
|
|
|
11,672
|
|
|
|
(1,505
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS – FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Issuance of preferred shares,
|
|
|
1,800
|
|
|
|
13,000
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
-
|
|
|
|
(*
|
)
|
Net cash provided by financing activities
|
|
|
1,800
|
|
|
|
13,000
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents and restricted cash
|
|
|
7,544
|
|
|
|
6,537
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash at
the beginning of the year
|
|
|
8,693
|
|
|
|
6,993
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash at the
end of the year
|
|
|
16,237
|
|
|
|
13,530
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash transactions:
|
|
|
|
|
|
|
|
|
Recognition of right-of-use asset and lease liability upon adoption of
ASU 2016-02
|
|
|
645
|
|
|
|
-
|
|
|
(*)
|
Less
than $1 thousand.
|
The
accompanying notes are an integral part of these interim consolidated financial statements.
BIOMX
LTD.
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - GENERAL
|
A.
|
Description
of business:
|
BiomX
Ltd. (formerly known as MBcure Ltd.) (the “Company”) was incorporated in March 2015 and began operations in May 2015.
The Company is developing bacteriophage-based therapies for the treatment and prevention of diseases stemming from dysbiosis of
the microbiome. On May 11, 2017, the Company changed its name from MBcure Ltd. to BiomX Ltd.
BiomX
was formed as an incubator company as part of the FutuRx incubator (the “Incubator” or “FutuRx”). The
Company’s R&D program was approved by the Israel Innovation Authority (the “IIA”) at the Israeli Ministry
of Economy and until 2017, the majority of BiomX’s funding was from IIA grants and funding by the Incubator, which is supported
by the IIA. BiomX continued to apply for and receive IIA grants also after BiomX left the Incubator. The requirements and restrictions
for such grants are found in the Israel Encouragement of Research and Development in Industries (the “Research Law”).
On
November 27, 2017, the Company acquired 100% control and ownership of RondinX Ltd. (“RondinX,” see note 5).
To
date, the Company has not generated revenue from its operations. As of June 30, 2019, the Company had unrestricted cash and cash
equivalent balance and short-term deposits of approximately $35 million, which management believes is sufficient to fund its operations
for more than 12 months from the date of issuance of these financial statements and sufficient to fund its operations necessary
to continue development activities of its current proposed products.
Due
to continuing R&D activities, the Company expects to continue to incur additional losses for the foreseeable future. The Company
plans to continue to fund its current operations, as well as other development activities relating to additional product candidates,
through future issuances of either debt and/or equity securities and possibly additional grants from the IIA and other government
institutions. The Company’s ability to raise additional capital in the equity and debt markets is dependent on a number
of factors including, but not limited to, the market demand for the Company’s stock, which itself is subject to a number
of development and business risks and uncertainties, as well as the uncertainty that the Company would be able to raise such additional
capital at a price or on terms that are favorable to the Company.
|
C.
|
Use
of estimates in the preparation of financial statements:
|
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
in the financial statements and the amounts of expenses during the reported periods. Actual results could differ from those estimates.
BIOMX
LTD.
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited
Interim Financial Statements
These
unaudited interim consolidated financial statements have been prepared as of June 30, 2019, and for the three- and six-month periods
ended June 30, 2019 and 2018. Accordingly, certain information and footnote disclosures normally included in annual financial
statements prepared in accordance with U.S. GAAP have been omitted. These unaudited interim consolidated financial statements
should be read in conjunction with the audited financial statements and the accompanying notes of the Company as of and for the
years ended December 31, 2018 and 2017.
Operating
results for the six-month period ended June 30, 2019, are not necessarily indicative of the results that may be expected for the
year ending December 31, 2019
Significant
Accounting Policies
The
significant accounting policies followed in the preparation of these unaudited interim consolidated financial statements are identical
to those applied in the preparation of the latest annual audited financial statements with the exception of the following:
In
February 2016, the Financial Accounting Standards Board issued ASU 2016-02, Leases (Topic 842). The Company adopted this ASU effective
January 1, 2019 using the modified retrospective application, applying the ASU to leases in place as of the adoption date. Prior
periods have not been adjusted.
Arrangements
that are determined to be leases at inception are recognized as long-term right-of-use assets (“ROU”) and lease liabilities
in the interim consolidated balance sheet at lease commencement. Operating lease liabilities are recognized based on the present
value of the future lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit
rate, the Company applies its incremental borrowing rate based on the economic environment at commencement date in determining
the present value of future lease payments. Lease terms may include options to extend the lease when it is reasonably certain
that the Company will exercise that option. Lease expense for operating leases or payments are recognized on a straight-line basis
over the lease term.
In accordance with ASC
360-10, management reviews operating lease ROU assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable based on estimated future undiscounted cash flows. If so indicated, an
impairment loss would be recognized for the difference between the carrying amount of the asset and its fair value.
|
B.
|
Stock
compensation plans:
|
In
June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2018-07, “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting”,
which simplifies the accounting for nonemployee share-based payment transactions by aligning the measurement and classification
guidance, with certain exceptions, to that for share-based payment awards to employees. The amendments expand the scope of the
accounting standard for share-based payment awards to include share-based payment awards granted to non-employees in exchange
for goods or services used or consumed in an entity’s own operations and supersedes the guidance related to equity-based
payments to non-employees. The Company adopted these amendments on January 1, 2019. The adoption of these amendments did not have
a material impact on the consolidated financial statements and related disclosures.
BIOMX
LTD.
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
C.
|
Recent
Accounting Standards:
|
In
June 2016, the FASB issued ASU 2016-13 “Financial Instruments – Credit Losses” to improve information on credit
losses for financial assets and net investment in leases that are not accounted for at fair value through net income. The ASU
replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. The Company
plans to adopt this ASU in the first quarter of 2020. The Company does not expect that the adoption of this ASU will have a material
impact on its consolidated financial statements.
In
August 2018, the FASB issued ASU 2018-13, “Changes to Disclosure Requirements for Fair Value Measurements,” which
will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard
removes, modifies, and adds certain disclosure requirements and is effective for the Company beginning on January 1, 2020. The
Company does not expect that this standard will have a material effect on the Company’s consolidated financial statements.
In
November 2018, the FASB issued ASU 2018-18 – “Collaborative Arrangements (Topic 808),” which clarifies the interaction
between Topic 808 and Topic 606, Revenue from Contracts with Customers. The Company expects to adopt this standard in the first
quarter of fiscal year 2020. This standard is not expected to have a material impact on the Company’s consolidated financial
statements and related disclosures.
NOTE
3 – SHORT-TERM DEPOSIT
Short-term
deposits represent time deposits placed with banks with original maturities of greater than three months but less than one year.
Interest earned is recorded as interest income in the interim consolidated statement of operations during the periods for which
the Company held short-term deposits.
The
Company has deposits denominated in U.S. Dollars (“USD”) held with Bank Hapoalim US and Bank Leumi Israel that bear
fixed annual interest of 2.4% to 3.6%.
BIOMX
LTD.
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4 – LEASES
On
January 1, 2019, the Company adopted ASU 2016-02 using the modified retrospective approach for all lease arrangements at the beginning
period of adoption. Leases existing for the reporting period beginning January 1, 2019 are presented under ASU 2016-02. The Company
leases office space under operating leases. At June 30, 2019, the Company’s ROU assets and lease liabilities for operating
leases totaled $594 thousand each. The impact of adopting ASU 2016-02 was not material to the Company’s consolidated statement
of operations for the periods presented.
In May 2017, the Company entered
into a lease agreement for office space in Ness Ziona, Israel. The agreement is for five years beginning on June 1, 2017 with
an option to extend for an additional five years. Monthly lease payments under the agreement are approximately $16 thousand. As
part of the agreement, the Company has obtained a bank guarantee in favor of the property owner in the amount of approximately
$92 thousand representing four monthly lease and related payments. Lease expenses recorded in the interim consolidated statements
of operations were $48 thousand and $96 thousand for the three and six months ended June 30, 2019, respectively. Lease expenses
recorded in the interim consolidated statements of operations were $48 thousand and $96 thousand for the three and six months
ended June 30, 2018, respectively.
Supplemental
cash flow information related to operating leases was as follows (unaudited):
|
|
Three months
ended
June 30,
2019
|
|
|
Six
months
ended June 30,
2019
|
|
Cash payments for operating leases
|
|
|
48
|
|
|
|
96
|
|
As
of June 30, 2019, the Company’s operating leases had a weighted average remaining lease term of 3 years and a weighted average
discount rate of 3%. Future lease payments under operating leases as of June 30, 2019 were as follows:
|
|
Operating Leases
|
|
Remainder of 2019
|
|
$
|
102
|
|
2020
|
|
$
|
204
|
|
2021
|
|
$
|
204
|
|
2022
|
|
$
|
110
|
|
Total future lease payments
|
|
$
|
620
|
|
Less imputed interest
|
|
|
(26
|
)
|
Total lease liability balance
|
|
$
|
594
|
|
BIOMX
LTD.
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5 – ACQUISITION OF SUBSIDIARY
On
November 19, 2017, the Company signed a share purchase agreement with the shareholders of RondinX. In accordance with the share
purchase agreement, the Company acquired 100% ownership and control of RondinX for consideration valued at $4.5 million. The consideration
included the issuance of 250,023 Preferred A Shares, the issuance of warrants to purchase an aggregate of 4,380 Series A-1 Preferred
Shares, and additional contingent consideration. The contingent consideration is based on the attainment of future clinical, developmental,
regulatory, commercial and strategic milestones relating to product candidates for treatment of primary sclerosing cholangitis
or entry into qualifying collaboration agreements with certain third parties and may require the Company to issue 234,834 ordinary
shares upon the attainment of certain milestones, as well as make future cash payments and/or issue additional shares of the most
senior class of the Company’s shares authorized or outstanding as of the time the payment is due, or a combination of both
of up to $32 million of the Company within ten years from the closing of the agreement and/or the entering of agreements with
certain third parties or their affiliates that include a qualifying up-front fee and is entered into within three years from the
closing of the agreement. The Company has the discretion of determining whether milestone payments will be made in cash or by
issuance of shares.
The
Company completed the RondinX acquisition on November 27, 2017.
The
contingent consideration is accounted for at fair value (level 3). There were no changes in the fair value hierarchy leveling
during the six months ended June 30, 2019 and the year ended December 31, 2018.
The
change in the fair value of the contingent consideration as of June 30, 2019 and December 31, 2018 was as follows:
|
|
Contingent
consideration
|
|
|
|
|
|
As of December 31, 2018
|
|
|
889
|
|
Revaluation of contingent consideration
|
|
|
14
|
|
As of June 30, 2019
|
|
|
903
|
|
|
|
Contingent
consideration
|
|
|
|
|
|
As of December 31, 2017
|
|
|
1,001
|
|
Revaluation of contingent consideration
|
|
|
11
|
|
As of June 30, 2018
|
|
|
1,012
|
|
BIOMX
LTD.
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE
6 – IN-PROCESS RESEARCH AND DEVELOPMENT
Intangible
assets acquired in the RondinX acquisition (see note 5) were determined to be in-process R&D. In accordance with ASC 350-30-35-17A,
R&D assets acquired in a business combination are considered an indefinite-lived intangible asset until completion or abandonment
of the associated R&D efforts. Once the R&D efforts are complete, the Company will determine the useful life of the R&D
assets and will amortize these assets accordingly in the financial statements. As of June 30, 2019, the in-process R&D efforts
had not yet been completed nor abandoned. Based on management’s analysis, there was no impairment for the six months ended
June 30, 2019 and 2018.
NOTE
7 – COMMITMENTS AND CONTINGENT LIABILITIES
|
A.
|
During
2015, 2016 and 2017, the Company submitted three applications to the IIA for a R&D project for the technological incubators
program. The approved budget per year was NIS 2,700,000 (approximately $726 thousand) per application. According to the IIA
directives, the IIA transferred to the Company 85% of the approved budget and the rest of the budget was funded by certain
shareholders.
|
During
2018, the Company submitted an additional application to the IIA for the Acne project. The application was approved, at an aggregate
budget of s NIS 4,221,370 (approximately $1,206 thousand) from which the IIA’s participation is up to 30% of the budget.
As of June, 30 2019, the IIA transferred to the Company the amount of NIS 1,078,981 (approximately $299 thousand), which was recognized
in the interim consolidated statement of operations for the period ended June 30, 2019.
According
to the agreement with the IIA, the Company will pay royalties of 3% to 3.5% of future sales up to an amount equal to the accumulated
grant received including annual interest of LIBOR linked to the USD. The Company may be required to pay additional royalties upon
the occurrence of certain events as determined by the IIA, that are within the control of the Company. No such events have occurred
or were probable of occurrence as of the balance sheet date with respect to these royalties. Repayment of the grant is contingent
upon the successful completion of the Company’s R&D programs and generating sales. The Company has no obligation to
repay these grants if the R&D program fails, is unsuccessful or aborted or if no sales are generated. The Company had not
yet generated sales as of June 30, 2019; therefore, no liability was recorded in these consolidated financial statements.
Total
research and development income recorded in the interim consolidated statement of operations was $299 thousand and $425 for the
three months ended June 30, 2019 and 2018, respectively, and $299 thousand and $646 for the six months ended June 30, 2019 and
2018, respectively. As of June 30, 2019, the Company had a contingent obligation to the IIA in the amount of approximately 2.2
million including annual interest of LIBOR linked to the USD.
BIOMX
LTD.
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 – COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
|
B.
|
In
June 2015, the Company entered into a Research and License Agreement (the “2015 License Agreement”) as amended
with Yeda Research and Development Company Limited (“Yeda”), according to which Yeda undertakes to procure the
performance of the research. The research includes proof-of-concept studies testing in-vivo phage eradication against a model
bacteria in germ free mice, development of an IBD model in animals under germ-free conditions and establishing an in-vivo
method for measuring immune induction capability (Th1) of bacteria, followed by testing several candidate IBD inducing bacterial
strains. During the research period, as defined in the 2015 License Agreement and subject to the terms and conditions specified
in the 2015 License Agreement. The Company contributed an aggregate of approximately $1.8 million to the research budget agreed
upon in the license agreement. In addition, Yeda granted the Company with an exclusive worldwide license for the development,
production and sale of the products (the “License”), as defined in the 2015 License Agreement and subject to the
terms and conditions specified in the 2015 License Agreement. In return for the License, the Company will pay Yeda annual
license fees of approximately $10 thousand and royalties on revenues as defined in the 2015 License Agreement. In addition,
in the event of certain mergers and acquisitions by the Company, Yeda will be entitled to an amount equivalent to 1% of the
consideration received under such transaction (the “exit fee”), as adjusted per the terms of the agreement. Upon
the closing of the merger with CHAC, the provisions of the Yeda license agreement related to the exit fee will be amended
(see note 10). As the Company has not yet generated revenue from operations, no provision was included in the financial statements
with respect to the 2015 License Agreement as of June 30, 2019 and December 31, 2018.
|
|
C.
|
In
May 2017, the Company entered into a lease agreement for office space in Ness Ziona, Israel. The agreement is for five years
beginning on June 1, 2017 with an option to extend for an additional five years. Monthly lease payments under the agreement
are approximately $16 thousand As part of the agreement, the Company has obtained a bank guarantee in favor of the property
owner in the amount of approximately $92 thousand representing four monthly lease payments. Lease expenses recorded in the
interim consolidated statements of operations were $96 thousand and $48 thousand for the three and six months ended June 30,
2019, respectively.
|
BIOMX
LTD.
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 – COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
|
D.
|
In
May 2017, the Company signed an additional agreement with Yeda (the “2017 License Agreement”). According to which,
Yeda provided a license to the Company. As consideration for the license, the Company will pay $10,000 for the term of the
2017 License Agreement, unless earlier terminated by either party, and granted Yeda 244,618 warrants to purchase Ordinary
Shares of the Company at NIS 0.01 nominal value. Refer to Note 10 below for the terms of the warrants granted. In the event
of certain mergers and acquisitions by the Company, Yeda will be entitled to an amount equivalent to 1% of the consideration
received under such transaction, as adjusted per the terms of the agreement, in lieu and without duplication of the exit fee
contemplated by the 2015 License Agreement. Upon the closing of the merger with CHAC, the provisions of the Yeda license agreement
related to the exit fee will be amended (see note 10). As the Company has not yet generated revenue from operations, no provision
was included in the financial statements with respect to the 2017 License Agreement as of June 30, 2019.
|
|
E.
|
In
April 2017, the Company signed an exclusive patent license agreement with the Massachusetts Institute of Technology (“MIT”)
covering methods to synthetically engineer phage. According to the agreement, the Company received an exclusive, royalty-bearing
license to certain patents held by MIT. In return, the Company paid an initial license fee of $25,000 during the year ended
December 31, 2017 and is required to pay certain license maintenance fees of up to $250,000 in each subsequent year and following
the commercial sale of licensed products. The Company is also required to make payments to MIT upon the satisfaction of development
and commercialization milestones totaling up to $2.4 million in aggregate as well as royalty payments on future revenues.
The consolidated financial statements do not include liabilities with respect to this agreement as the Company has not yet
generated revenue and the achievement of certain milestones is not probable.
|
|
F.
|
As
successor in interest to RondinX, the Company is a party to a license agreement dated March 20, 2016 with Yeda, pursuant to
which the Company has a worldwide exclusive license to Yeda’s know-how, information and patents related to the Company’s
meta-genomics target discovery platform. As consideration for the license, the Company will pay license fees of $10,000 subject
to the terms and conditions of the agreement. Either party has the option to terminate the agreement at any time by way of
notice to the other party as outlined in the agreement. In addition, the Company will pay a royalty in the low single digits
on revenue from the sale of products. As the Company has not yet generated revenue from operations, no provision was included
in the financial statements as of as of June 30, 2019 with respect to the agreement.
|
|
G.
|
In
December 2017, the Company signed a patent license agreement with Keio University and JSR Corporation in Japan. According
to the agreement, the Company received an exclusive patent license to certain patent rights related to the Company’s
inflammatory bowel disease program. In return, the Company will pay annual license fees of between $15 thousand to $25 thousand
subject to the terms and conditions specified in the agreement. Additionally, the Company is obligated to pay contingent consideration
based upon the achievement of clinical and regulatory milestones up to an aggregate of $3.2 million and royalty payments based
on future revenue.
|
The
consolidated financial statements do not include liabilities with respect to this agreement as the Company has not yet generated
revenue and the achievement of certain milestones does not meet the probable threshold.
|
H.
|
In
April 2019, the Company signed additional patent license agreement with Keio University and JSR Corporation in Japan. According
to the agreement, the Company received an exclusive sublicense by JSR to certain patent license to certain patent rights related
to the Company’s Primary Sclerosing Cholangitis program. In return, the Company is required (i) to pay a license issue
fee of $20,000 and annual license fees ranging from $15,000 to $25,000 and (ii) make additional payments based upon the achievement
of clinical and regulatory milestones up to an aggregate of $3.2 million (“milestone payments”) and (iii) make
tiered royalty payments, in the low single digits based on future revenue. As the Company has not yet generated any revenue,
and the achievement of certain milestones is not probable, no provision was included in the interim consolidated financial
statements as of as of June 30, 2019 and in the financial statements December 31, 2018 with respect to the agreement.
|
BIOMX
LTD.
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 – SHAREHOLDERS’ EQUITY
Ordinary
Shares:
The
Ordinary Shares entitle their holders the right to receive notice of, and to participate and vote in, all general meetings, to
receive dividends and, subject to the Articles to participate in the distribution of the surplus assets and funds of the Company
in a Liquidation Event (as defined in the Articles). The holder of an Ordinary Share has no other right and such holder may waive,
in writing, any of the rights set forth above, including the rights to receive notices of, and to participate and vote in, all
general meetings; provided, however, that such holder will be entitled to any other mandatory right of a shareholder in a private
Company pursuant to the Companies Law which cannot be waived.
Ordinary
A Shares:
The
Ordinary A Shares are convertible into Ordinary Shares upon the closing of each and every investment round (as defined in the
Articles), by providing a notice to this effect to the Company. The holders of the Ordinary A Shares are entitled to the rights,
preferences, privileges and restrictions granted to and imposed upon the Ordinary Shares. However, the holders of the Ordinary
A Shares do not have voting rights.
Preferred
A Shares:
The
Preferred A Shares are convertible into 234,147 Ordinary Shares, representing a conversion price of $4.10 per share, and entitle
their holders to the rights, preferences, privileges and restrictions granted to and imposed upon the Ordinary Shares and Ordinary
A Shares, as well as the right to participate in a distribution of surplus of assets upon liquidation of the Company, merger and
acquisition event and distribution of dividend by the Company, at an amount equal to their original issue price plus 8% annual
interest accumulated as of the Liquidation Event Date (as defined in the Articles), before any distribution is made to a holder
of any Ordinary Shares.
The
Preferred A Share conversion price is subject to broad weighted average anti-dilution protection in the event of future funding
at an effective share price which is lower than the Preferred A Share conversion price.
Preferred
A-1 Shares:
The
Preferred A-1 Shares are convertible into 2,500,511 Ordinary Shares, representing a conversion price of $10.22 per share, and
entitle their holders to the rights, preferences, privileges and restrictions granted to and imposed upon the Preferred A Shares.
Preferred
A-2 Shares:
The
Preferred A-2 Shares are convertible into 130,434 Ordinary Shares, representing a conversion price of $9.20 per share, and entitle
their holders to the rights, preferences, privileges and restrictions granted to and imposed upon the Preferred A Shares.
BIOMX
LTD.
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 – SHAREHOLDERS’ EQUITY (Cont.)
Preferred
A-4 Shares:
Preferred
A-4 Shares are convertible into 255,320 Ordinary Shares, representing a conversion price of $11.75 per share, and entitle their
holders to the rights, preferences, privileges and restrictions granted to and imposed upon the Preferred A Shares.
Preferred
B Shares:
Preferred
B Shares are convertible into 2,266,314 Ordinary Shares, representing a conversion price of $14.1 per share, and entitle their
holders to the rights, preferences, privileges and restrictions granted to and imposed upon the Preferred A Shares.
Preferred
B Shares entitle their holder to participate in a distribution of surplus of assets upon liquidation of the Company, at an amount
equal to their original issue price plus 8% annual interest accumulated as of the Liquidation Event (as defined in the Articles)
date, before any distribution is made to holder of any Preferred A Shares (i.e., Preferred A Shares, Preferred A-1 Shares, Preferred
A-2 Shares, Preferred A-3 Shares and Preferred A-4 Shares), and any Ordinary Shares.
|
B.
|
Issuance
of Share Capital:
|
In
June 2015, the Company entered into the Incubator Agreement with the Incubator and other investors (the “June 2015 Investors”).
In accordance with the Incubator Agreement, the Company issued 812,000 Ordinary Shares at NIS 0.01 nominal value to the June 2015
Investors and an additional 125,261 Ordinary Shares at NIS 0.01 nominal value to a trustee to be held in trust for the sole purpose
of allocation of the Ordinary Shares to employees and consultants of the Company.
In
addition, the Company issued 234,147 Preferred A Shares at NIS 0.01 nominal value to the investors in consideration for $960 thousands
and granted Yeda warrants to purchase 20,360 Preferred A Shares nominal value NIS 0.01.
On
February 2017, the Company entered into a share purchase agreement (the “February 2017 SPA”) with new and existing
investors (the “February 2017 Investors”). In accordance with the February 2017 SPA, On February 15, 2017, the Company
issued the February 2017 Investors 1,663,404 Preferred A-1 Shares at NIS 0.01 nominal value (“Preferred A-1 Shares”),
and 130,434 Preferred A-2 Shares at NIS 0.01 nominal value in two tranches as follows:
|
●
|
On
February 15, 2017, the Company issued 831,702 Preferred A-1 Shares for a total consideration of $8,500 thousands. In addition,
the convertible notes in an amount of $1,200 thousands granted in August 2016 were converted into 130,434 Preferred A-2 Shares
at NIS 0.01 nominal value.
|
|
●
|
On
February 7, 2018, the Company issued 831,702 Preferred A-1 Shares for a total consideration of $8,500 thousands.
|
BIOMX
LTD.
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 – SHAREHOLDERS’ EQUITY (Cont.)
|
B.
|
Issuance
of Share Capital: (Cont.)
|
On
March 26, 2017 the Company entered into share purchase agreement (the “March 2017 SPA”) with new investors (the “March
2017 Investors”). In accordance with the March SPA, the Company issued to the March 2017 Investors 587,084 Preferred A-1
Shares in two tranches as follows:
|
●
|
On
March 30, 2017, the Company issued 293,542 Preferred A-1 Shares for a total consideration of $3,000 thousands.
|
|
●
|
On
February 7, 2018, the Company issued 293,542 Preferred A-1 Shares for a total consideration of $3,000 thousands.
|
On
November 30, 2017, the Company entered into a share purchase agreement (the “November 2017 SPA”) with additional investors
(the “November 2017 Investors”). In accordance with the November 2017 SPA, the Company issued the November 2017 Investors
255,320 Preferred A-4 Shares at NIS 0.01 nominal value in two tranches as follows:
|
●
|
On
December 7, 2017, the Company issued 127,660 Preferred A-4 Shares for total consideration
of $1,500 thousand.
|
|
●
|
On
February 7, 2018, the Company issued 127,660 Preferred A-4 Shares for a total consideration of $1,500 thousand.
|
On
November 19, 2017, the Company signed an agreement to purchase 100% of RondinX shares (see also Note 6). The consideration transferred
included an issuance of 250,023 Preferred A-1 Shares and 4,380 warrants to purchase Preferred A-1 shares for no additional consideration.
In
November 2018, the Company entered into a share purchase agreement (the “November 2018 SPA”) with new and existing
investors (the “November 2018 Investors”). In accordance with the November 2018 SPA, the Company issued to the November
2018 Investors a total of 2,266,314 Preferred B Shares at NIS 0.01 nominal value (the “Preferred B Shares”) for total
consideration of $31,955 thousand as follows:
|
●
|
On
November 28, 2018 and on December 11, 2018, the Company issued to the November 2018 Investors 2,053,548 and 85,106 Preferred
B Shares, respectively, for total consideration of $30,155 thousand in accordance with the November 2018 SPA.
|
|
●
|
On
January 8, 2019, the Company issued to the November 2018 Investors an additional 127,660 Preferred B Shares for total consideration
of $1,800 thousand in accordance with the November 2018 SPA.
|
BIOMX
LTD.
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 – SHAREHOLDERS’ EQUITY (Cont.)
|
C.
|
Share-based
compensation:
|
The
Company has a plan whereby it grants options which represent a right to purchase 1 Ordinary Share of the Company in consideration
of the payment of an exercise price. The options granted have been in accordance with the “capital gains route” under
section 102 and section 3(i) of the Israeli Income Tax Ordinance and section 409A of the Israeli IRS Code.
In
2015, the Company’s Board of Directors (the “Board”) approved a plan for allocation of options to employees,
service providers and officers. As of June 30, 2019, the number of options available for grant under the approved plan was 164,176
options.
On
November 2015, the Board approved the grant of 180,139 non- tradable options without consideration to one employee, four consultants
and six employees of the Incubator. Based on the considerations in ASC 718-10, the employees of the Incubator were defined as
employees based on their relationship with the Company.
The
options to two of the consultants were granted at an exercise price of NIS 0.01 per share. 22% of the options vest and become
exercisable on the first and second anniversaries of the vesting commencement date of June 2015. Thereafter, the options vest
and become exercisable in three equal annual installments of 18.67% each.
The
options to the employees of the Incubator and to two consultants were granted at an exercise price of NIS 0.01 per share. 33%
of the options vest and become exercisable on the first anniversary of the vesting commencement date of June 2015. Thereafter,
the options vest and become exercisable in 8 equal quarterly installments of 8.375% each.
The
options to the Company employee were granted at an exercise price of NIS 0.01 per share. 25% of the options vest and become exercisable
on the first anniversary of the vesting commencement date. Thereafter, the options vest and become exercisable in 12 equal quarterly
installments of 6.25% each.
During
2016, the Board approved the grant of an additional 128,260 non-tradable options without consideration to four employees and five
consultants.
The
options to three employees were granted at an exercise price of NIS 0.01 per share.
25%
of the options vest and become exercisable on the first anniversary of the vesting commencement date. Thereafter, the options
vest and become exercisable in 12 equal quarterly installments of 6.25% each.
The
options to one additional employee were granted at an exercise price of $1.3 per share. 13,851 options vest and become exercisable
upon appointment as chief executive officer of the Company. The remainder of the options shall vest as follows: 25% of the options
vest and become exercisable on the first anniversary of the vesting commencement date. Thereafter, the options vest and become
exercisable in 12 equal quarterly installments of 6.25% each.
The
options to two consultants were granted at an exercise price of NIS 0.01 per share.
22%
of the options vest and become exercisable on the first and second anniversaries of the vesting commencement date (June 2015).
Thereafter, the options vest and become exercisable in three equal annual installments of 18.67% each.
The
options to two additional consultants were granted at an exercise price of $1.3 per share.
25%
of the options vest and become exercisable on the first anniversary of the vesting commencement date. Thereafter, the options
vest and become exercisable in 12 equal quarterly installments of 6.25% each.
BIOMX
LTD.
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 – SHAREHOLDERS’ EQUITY (Cont.)
|
C.
|
Share-based
compensation (Cont.):
|
The
options to one additional consultant were granted at an exercise price of $4.1 per share.
33%
of the options vest and become exercisable on the first anniversary of the vesting commencement date. Thereafter, the options
vest and become exercisable in 8 equal quarterly installments of 8.375% each.
During
2017, the Board approved the grant of an additional 448,775 non-tradable options without consideration to 29 employees and 5 consultants.
The
options to 29 employees and 3 consultants were granted at an exercise price of $4.089 per share. 25% of the options vest and become
exercisable on the first anniversary of the vesting commencement date. Thereafter, the options vest and become exercisable in
12 equal quarterly installments of 6.25% each.
The
options to 2 additional consultants were granted at an exercise price of NIS 0.01 per share. 22% of the options vest and become
exercisable on the first and second anniversaries of the vesting commencement date (June 2015). Thereafter, the options vest and
become exercisable in three equal annual installments of 18.67% each.
During
October 2017, 4,564 options were exercised to purchase Ordinary Shares at an exercise price of NIS 0.01 per share.
During
2018, the Board approved the grant of an additional 325,026 non-tradable options without consideration to 27 employees and 82,513
non-tradable options without consideration to 2 consultants.
362,555
options were granted at an exercise prices of $4.771-$4.909 per share.
25%
of the options vest and become exercisable on the first anniversary of the vesting commencement date. Thereafter, the options
vest and become exercisable in 12 equal quarterly installments of 6.25% each.
44,984
options were granted at an exercise price of $4.089 per share and vest on variable vesting dates.
During
2018, 12,797 options were exercised to purchase Ordinary Shares at an exercise price of NIS 0.01 per share.
Certain
senior employees are entitled to full acceleration of their unvested options upon the occurrence of cumulative two certain events.
In
March 2019, the Board approved the grant of an additional 212,900 non-tradable options without consideration to 21 employees and
2,503 non-tradable options without consideration to one consultant.at an exercise prices of $4.91 per share.
25%
of the options vest and become exercisable on the first anniversary of the vesting commencement date. Thereafter, the options
vest and become exercisable in 12 equal quarterly installments of 6.25% each.
BIOMX
LTD.
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 – SHAREHOLDERS’ EQUITY (Cont.)
|
C.
|
Share-based
compensation: (Cont.)
|
The
fair value of each option was estimated as of the date of grant or reporting period using the Black-Scholes option-pricing model.
The
fair value of options granted during the period was estimated at the date of grant using the following assumptions:
|
|
Six months
ended
June 30,
2019
|
|
|
|
|
|
Underlying value of ordinary share ($)
|
|
|
4.91
|
|
Exercise price ($)
|
|
|
4.91
|
|
Expected volatility (%)
|
|
|
93.1
|
|
Term of the option (years)
|
|
|
6.25
|
|
Risk-free interest rate (%)
|
|
|
2.23
|
|
The
cost of the benefit embodied in the options granted during the six-month period ended June 30, 2019, based on their fair value
as at the grant date, is estimated to be $836 thousand. These amounts will be recognized in statements of operations over the
vesting period.
Warrants:
|
1.
|
In
May 2017, in accordance with the 2017 License Agreement (see also Note 6D), the Company issued to Yeda, for no consideration,
244,618 warrants to purchase Ordinary Shares at NIS 0.01 nominal value. The Company recognized expenses of $ 13 thousand and
$49 thousand for the three months ended June 30, 2019 and 2018, respectively and $48 thousand and $89 thousand
for the six months ended June 30, 2019 and 2018, respectively, which were included in research and development expenses.
|
97,847
warrants were fully vested and exercisable on the date of their issuance. The remainder of the warrants will vest and become exercisable
subject to achievement of certain milestones specified in the agreement as follows:
|
a.
|
73,385
upon the filing of a patent application covering any Discovered Target or a Product,
|
|
b.
|
48,924
upon achievement of the earlier of the following milestone by the Company:
|
|
(i)
|
execution
of an agreement with a pharmaceutical company with respect to the commercialization of any of the Company’s licensed
technology or the Consulting IP or a Product (both defined in the 2017 License Agreement) or
|
|
(ii)
|
the
filing of a patent application covering any Discovered Target (as defined in the 2017 License Agreement) or a Product.
|
|
c.
|
24,462
upon completion of a Phase 1 clinical trial in respect of a Product.
|
|
2.
|
In
November 2017, in accordance with the RondinX share purchase agreement (see also Note 5), the Company issued to Yeda and 2
consultants, for no consideration, 4,380 warrants to purchase Preferred A-1 Shares at NIS 0.01 nominal value.
|
The
warrants were fully vested and exercisable on the date of their issuance.
BIOMX
LTD.
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 – SHAREHOLDERS’ EQUITY (Cont.)
|
C.
|
Share-based
compensation: (Cont.)
|
|
(1)
|
A
summary of options granted to purchase the Company’s Ordinary Shares under the Company’s share option plan is
as follows:
|
|
|
For year six months ended
June 30, 2019
|
|
|
|
Employees
|
|
|
Consultants
|
|
|
|
Number
of
Options
|
|
|
Weighted
average
exercise
price
|
|
|
Aggregate
intrinsic
value
|
|
|
Number
of
Options
|
|
|
Weighted
average
exercise
price
|
|
|
Aggregate
intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the beginning of year
|
|
|
772,985
|
|
|
|
3.81
|
|
|
|
849
|
|
|
|
290,534
|
|
|
|
1.66
|
|
|
|
944
|
|
Granted
|
|
|
212,900
|
|
|
|
4.91
|
|
|
|
|
|
|
|
2,503
|
|
|
|
4.91
|
|
|
|
|
|
Forfeited
|
|
|
(49,203
|
)
|
|
|
4.37
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of year
|
|
|
936,682
|
|
|
|
4.03
|
|
|
|
824
|
|
|
|
293,037
|
|
|
|
1.69
|
|
|
|
944
|
|
Vested at end of period
|
|
|
335,618
|
|
|
|
|
|
|
|
|
|
|
|
175,727
|
|
|
|
|
|
|
|
|
|
Weighted average remaining contractual life –
years as of June 30, 2019
|
|
|
8.94
|
|
|
|
|
|
|
|
|
|
|
|
7.62
|
|
|
|
|
|
|
|
|
|
BIOMX
LTD.
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 – SHAREHOLDERS’ EQUITY (Cont.)
|
C.
|
Share-based
compensation: (Cont.)
|
|
|
Warrants issued to Yeda
|
|
|
|
Number of
Options
|
|
|
Weighted average
exercise price
|
|
Aggregate
intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
Outstanding as at June 30, 2019 and December 31, 2018
|
|
|
244,618
|
|
|
(*
|
)
|
|
1,200
|
|
Vested as at June 30, 2019 and December 31, 2018
|
|
|
97,847
|
|
|
|
|
|
|
|
Weighted average remaining contractual life – years as of June 30, 2019
|
|
|
5.86
|
|
|
|
|
|
|
|
Weighted average remaining contractual life – years as of
December 31, 2018
|
|
|
6.36
|
|
|
|
|
|
|
|
|
(2)
|
The
following table sets forth the total share-based payment expenses resulting from options granted, included in the statements
of operation:
|
|
|
Six months ended
June
30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
R&D
|
|
|
367
|
|
|
|
174
|
|
General and administrative
|
|
|
264
|
|
|
|
281
|
|
|
|
|
631
|
|
|
|
455
|
|
|
|
Three months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
R&D
|
|
|
173
|
|
|
|
103
|
|
General and administrative
|
|
|
154
|
|
|
|
109
|
|
|
|
|
327
|
|
|
|
212
|
|
BIOMX
LTD.
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE
9 – RELATED PARTIES
On
October 31, 2018, BiomX entered into a research collaboration agreement with Janssen Research & Development, LLC (“Janssen”)
an affiliate of shareholder Johnson & Johnson Development Corporation, for a collaboration on biomarker discovery for inflammatory
bowel disease (“IBD”). Under the agreement, BiomX is eligible to receive fees totaling $167 thousand in installments
of $50 thousand within 60 days of signing of the agreement, $17 thousand upon completion of data processing, and two installments
of $50 thousand each, upon delivery of Signature Phase I of the Final Study Report (both terms defined within the agreement).
Unless terminated earlier, this agreement will continue in effect, until 30 days after the parties complete the research program
and BiomX provide Janssen with a final study report. The research period started during March 2019 and is expected to continue
through September 2019. As of June 30, 2019, the Company received $50 thousand with respect to this agreement. and recorded a
reduction from research and development expenses of $95 thousand during the six months ended June 30, 2019.
NOTE
10 – SUBSEQUENT EVENTS
In
accordance with FASB ASC 855-10-50-1, the Company has analyzed its operations subsequent to June 30, 2019 and up until August 22, 2019, the date these interim consolidated financial statements were issued, and has determined that it does not have any
material subsequent events to disclose except as follows:
|
A.
|
On
July 16, 2019, the Company entered into a merger agreement (the “Merger Agreement”),
with Chardan Healthcare Acquisition Corp. (“CHAC”), CHAC Merger Sub Ltd.
(“Merger Sub”), and Shareholder Representative Services LLC (“SRS”),
pursuant to which, among other things, the Company will merge with Merger Sub. with the
Company being the surviving entity in accordance with the Israeli Companies Law, 5759-1999
(the “Companies Law”), as a wholly owned direct subsidiary of CHAC (the “Merger”).
CHAC is a SPAC (Special Purpose Acquisition Company), a corporation that is publicly
traded on the New York Stock Exchange. CHAC raised $70,000,000 in its initial public
offering in 2018 and has not conducted any business other than seeking a party to a merger
transaction (such as the Merger herein) where the cash CHAC raised, or part of it, will
be used to finance the operations of the company it would merge with.
|
The
consideration payable in the Merger consists of an aggregate of 16,625,000 shares of CHAC common stock, subject to reduction for
indemnification claims (as described below), that will be issued (or reserved for issuance pursuant to currently exercisable options
or warrants) in respect of shares of the Company that are issued and outstanding as of immediately prior to the effective time
of the Merger (the “Closing”) and options and warrants to purchase shares of the Company, in each case, that are issued,
outstanding and vested as of immediately prior to the Closing. Additional shares of CHAC common stock will be reserved for issuance
in respect of options and warrants to purchase shares of the Company that are issued, outstanding and unvested as of immediately
prior to the closing.
The closing of the Merger
is subject to certain closing conditions. As of August 22, 2019, the date these interim consolidated financial statements were
issued, the Merger has not closed.
|
B.
|
In
July 2019, the Company has committed to enter into loan agreements in the aggregate amount
of up to $1,900 thousand, with certain of its shareholders who are subject to taxation
in Israel, pursuant to which the Company will extend to such shareholders loans for the
purpose of paying Israeli capital gain taxes payable by them in connection with the issuance
to them of CHAC shares in exchange for their shares in the Company upon consummation
of the Merger. Such loans are for a period of up to two years, are non-recourse and are
secured by CHAC shares issued to them that have a value (based on $10 per share, the
attributed price of the CHAC Shares immediately prior to such issuance that equals
three times the loan amount.
|
|
C.
|
In
July 2019, the Company, Yeda and CHAC amended the 2015 License Agreement and to the 2017
License Agreement with Yeda (the “Amendment”). Pursuant to the Amendment,
upon the closing of the Merger, the provisions of the Yeda license agreements related
to the exit fee will be amended so that, instead of the exit fee, in the event of any
merger or acquisition involving CHAC, CHAC is obliged to pay Yeda a one-time payment
as described in the amendment which will not exceed 1% of the consideration received
under such transaction.
|
BIOMX
LTD.
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
As
of December 31,
|
|
|
|
Note
|
|
2
0 1 8
|
|
|
2
0 1 7
|
|
|
|
|
|
USD
In thousands
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
8,604
|
|
|
|
6,898
|
|
Restricted
cash
|
|
|
|
|
89
|
|
|
|
95
|
|
Short-term
deposits
|
|
|
|
|
31,055
|
|
|
|
1,154
|
|
Other
receivables
|
|
3
|
|
|
140
|
|
|
|
327
|
|
Total
current assets
|
|
|
|
|
39,888
|
|
|
|
8,474
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
4
|
|
|
887
|
|
|
|
960
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process
research and development (“R&D”)
|
|
5
|
|
|
4,556
|
|
|
|
4,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,331
|
|
|
|
13,990
|
|
The
accompanying Notes are an integral part of the consolidated financial statements.
BIOMX
LTD.
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
As
of December 31,
|
|
|
|
Note
|
|
2
0 1 8
|
|
|
2
0 1 7
|
|
|
|
|
|
USD
In thousands
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Trade
account payables
|
|
|
|
|
193
|
|
|
|
421
|
|
Other
account payables
|
|
6
|
|
|
1,396
|
|
|
|
1,038
|
|
Related
parties
|
|
7
|
|
|
50
|
|
|
|
-
|
|
Total
current liabilities
|
|
|
|
|
1,639
|
|
|
|
1,459
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Contingent
liabilities
|
|
5
|
|
|
889
|
|
|
|
1,001
|
|
Total
non-current liabilities
|
|
|
|
|
889
|
|
|
|
1,001
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingent Liabilities
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary
shares, NIS 0.01 par value (“Ordinary Shares”); Authorized 14,044,778 shares as of December 31, 2018 and 10,948,215
shares as of December 31, 2017. Issued and outstanding 954,622 shares as of December 31, 2018 and 653,613 shares as of December
31, 2017.
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary
A shares, NIS 0.01 par value (“Ordinary A Shares”); Authorized 1,000,000 shares as of December 31, 2018 and December
31, 2017. Issued and outstanding 0 as of December 31, 2018 and 288,212 shares as of December 31, 2017.
|
|
|
|
|
-
|
|
|
|
(*
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
A shares (“Preferred A Shares”); NIS 0.01 par value; Authorized 6,796,342 shares as of December 31, 2018 and December
31, 2017. Issued and outstanding 3,120,412 shares as of December 31, 2018 and 1,867,508 shares as of December 31, 2017.
|
|
|
|
|
6
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
B shares (“Preferred B Shares”); NIS 0.01 par value; Authorized 2,836,880 shares as of December 31, 2018 and 0
shares as of December 31, 2017. Issued and outstanding 2,138,654 shares as of December 31, 2018 and 0 shares as of December
31, 2017.
|
|
|
|
|
3
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid in capital
|
|
|
|
|
64,400
|
|
|
|
20,412
|
|
Accumulated
deficit
|
|
|
|
|
(21,609
|
)
|
|
|
(8,889
|
)
|
Total
shareholders’ equity
|
|
|
|
|
42,803
|
|
|
|
11,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,331
|
|
|
|
13,990
|
|
The
accompanying Notes are an integral part of the consolidated financial statements.
BIOMX
LTD.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
|
|
|
|
Year
ended December 31,
|
|
|
|
Note
|
|
2
0 1 8
|
|
|
2
0 1 7
|
|
|
2
0 1 6
|
|
|
|
|
|
USD
In thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development (“R&D”) expenses, net
|
|
11
|
|
|
9,135
|
|
|
|
4,176
|
|
|
|
1,149
|
|
General
and administrative expenses
|
|
12
|
|
|
3,360
|
|
|
|
2,536
|
|
|
|
620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Loss
|
|
|
|
|
12,495
|
|
|
|
6,712
|
|
|
|
1,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revaluation
of convertible note
|
|
9
|
|
|
-
|
|
|
|
-
|
|
|
|
133
|
|
Financial
expenses, net
|
|
|
|
|
225
|
|
|
|
(279
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
12,720
|
|
|
|
6,433
|
|
|
|
1,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per Ordinary Shares and Ordinary A Shares
|
|
14
|
|
|
18.41
|
|
|
|
9.08
|
|
|
|
2.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of Ordinary Shares and Ordinary A Shares outstanding, basic and diluted
|
|
|
|
|
828,295
|
|
|
|
813,902
|
|
|
|
812,000
|
|
The
accompanying Notes are an integral part of the consolidated financial statements.
BIOMX
LTD.
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
USD
in thousands except share data
|
|
Ordinary
Shares
|
|
|
Ordinary
A Shares
|
|
|
Preferred
A Shares
|
|
|
Preferred
B Shares
|
|
|
Additional
paid in
|
|
|
Accumulated
|
|
|
Total
shareholders’ equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
(deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2016
|
|
|
937,261
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
234,147
|
|
|
|
(*
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,195
|
|
|
|
(556
|
)
|
|
|
642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
payment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
247
|
|
|
|
-
|
|
|
|
247
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,900
|
)
|
|
|
(1,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2016
|
|
|
937,261
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
234,147
|
|
|
|
(*
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,442
|
|
|
|
(2,456
|
)
|
|
|
(1,011
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares (**)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,252,904
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,000
|
|
|
|
-
|
|
|
|
13,002
|
|
Conversion
of Ordinary to Ordinary A Shares
|
|
|
(288,212
|
)
|
|
|
|
|
|
|
288,212
|
|
|
|
(*
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Shares
issued in connection with convertible note conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
130,434
|
|
|
|
(*
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,333
|
|
|
|
-
|
|
|
|
1,333
|
|
Shares
issued in connection with acquisition of subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
250,023
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,327
|
|
|
|
-
|
|
|
|
3,329
|
|
Share-based
payment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,310
|
|
|
|
-
|
|
|
|
1,310
|
|
Exercise
of options
|
|
|
4,564
|
|
|
|
(*
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,433
|
)
|
|
|
(6,433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2017
|
|
|
653,613
|
|
|
|
3
|
|
|
|
288,212
|
|
|
|
(*
|
)
|
|
|
1,867,508
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,412
|
|
|
|
(8,889
|
)
|
|
|
11,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares (***)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,252,904
|
|
|
|
2
|
|
|
|
2,138,654
|
|
|
|
3
|
|
|
|
43,037
|
|
|
|
-
|
|
|
|
43,042
|
|
Conversion
of shares
|
|
|
288,212
|
|
|
|
(*
|
)
|
|
|
(288,212
|
)
|
|
|
(*
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Share-based
payment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
951
|
|
|
|
-
|
|
|
|
951
|
|
Exercise
of options
|
|
|
12,797
|
|
|
|
(*
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,720
|
)
|
|
|
(12,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2018
|
|
|
954,622
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,120,412
|
|
|
|
6
|
|
|
|
2,138,654
|
|
|
|
3
|
|
|
|
64,400
|
|
|
|
(21,609
|
)
|
|
|
42,803
|
|
(*)
Less than $1,000.
(**)
Net of issuance expenses in amount of $73,000.
(***)
Net of issuance expenses in amount of $114,000.
The
accompanying Notes are an integral part of the consolidated financial statements.
BIOMX
LTD.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
For
year ended December 31,
|
|
|
|
2
0 1 8
|
|
|
2
0 1 7
|
|
|
2
0 1 6
|
|
|
|
USD
In thousands
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS – OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(12,720
|
)
|
|
|
(6,433
|
)
|
|
|
(1,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
required to reconcile cash flows used in operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
210
|
|
|
|
95
|
|
|
|
23
|
|
Share-based
compensation
|
|
|
951
|
|
|
|
1,310
|
|
|
|
247
|
|
Accrued
interest
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
Revaluation
of convertible notes and contingent liabilities
|
|
|
(112
|
)
|
|
|
-
|
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
receivables
|
|
|
187
|
|
|
|
(225
|
)
|
|
|
63
|
|
Trade
account payables
|
|
|
(228
|
)
|
|
|
407
|
|
|
|
(15
|
)
|
Other
account payables
|
|
|
358
|
|
|
|
783
|
|
|
|
92
|
|
Related
parties
|
|
|
50
|
|
|
|
(37
|
)
|
|
|
19
|
|
Net
cash used in operating activities
|
|
|
(11,304
|
)
|
|
|
(4,100
|
)
|
|
|
(1,336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS – INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in short-term deposit
|
|
|
(29,901
|
)
|
|
|
(1,154
|
)
|
|
|
-
|
|
Acquisition
of a subsidiary, net of cash acquired
|
|
|
-
|
|
|
|
(112
|
)
|
|
|
-
|
|
Purchase
of property and equipment
|
|
|
(137
|
)
|
|
|
(850
|
)
|
|
|
(98
|
)
|
Net
cash used in investing activities
|
|
|
(30,038
|
)
|
|
|
(2,116
|
)
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS – FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of preferred shares, net of issuance costs
|
|
|
43,042
|
|
|
|
12,953
|
|
|
|
-
|
|
Proceeds
from issuance of convertible notes
|
|
|
-
|
|
|
|
-
|
|
|
|
1,200
|
|
Exercise
of stock options
|
|
|
(*
|
)
|
|
|
(*
|
)
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
43,042
|
|
|
|
12,953
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in cash and cash equivalents and restricted cash
|
|
|
1,700
|
|
|
|
6,737
|
|
|
|
(234
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents and restricted cash at the beginning of the year
|
|
|
6,993
|
|
|
|
256
|
|
|
|
490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents and restricted cash at the end of the year
|
|
|
8,693
|
|
|
|
6,993
|
|
|
|
256
|
|
The
accompanying Notes are an integral part of the consolidated financial statements.
BIOMX
LTD.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
For
the year ended December 31,
|
|
|
|
2
0 1 8
|
|
|
2
0 1 7
|
|
|
2
0 1 6
|
|
|
|
USD
In thousands
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of convertible notes into Preferred A Shares
|
|
|
-
|
|
|
|
1,333
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appendix
A: Acquisitions of subsidiary consolidated for the first time
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital (excluding cash and cash equivalents)
|
|
|
-
|
|
|
|
(78
|
)
|
|
|
-
|
|
Property
and equipment, net
|
|
|
-
|
|
|
|
14
|
|
|
|
-
|
|
In-process
R&D
|
|
|
-
|
|
|
|
4,556
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of a subsidiary, net of cash acquired
|
|
|
-
|
|
|
|
4,492
|
|
|
|
-
|
|
The
accompanying Notes are an integral part of the consolidated financial statements.
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED THE FINANCIAL
STATEMENTS
NOTE 1 – GENERAL
BiomX Ltd. (formerly known as MBcure Ltd.) (the
“Company”) was incorporated in March 2015 and began operations in May 2015. The Company is developing bacteriophage-based
therapies for the treatment and prevention of diseases stemming from dysbiosis of the microbiome. On May 11, 2017, the Company
changed its name from MBcure Ltd. to BiomX Ltd.
BiomX was formed as an incubator company as
part of the FutuRx incubator (the “Incubator” or “FutuRx”), The Company’s R&D program was approved
by the Israel Innovation Authority (the “IIA”) at the Israeli Ministry of Economy and until 2017, the majority of
BiomX’s funding was from IIA grants and funding by the Incubator, which is supported by the IIA. BiomX continued to apply
for and receive IIA grants also after BiomX left the Incubator. The requirements and restrictions for such grants are found in
the Israel Encouragement of Research and Development in Industries (the “Research Law”).
On November 27, 2017, the Company acquired 100%
control and ownership of RondinX Ltd. (“RondinX,” see note 5).
To date, the Company has not generated revenue
from its operations. As of July 17, 2019, the Company had unrestricted cash and cash equivalent balance and short-term deposits
of approximately $34 million, which management believes is sufficient to fund its operations for more than 12 months from the
date of issuance of these financial statements and sufficient to fund its operations necessary to continue development activities
of its current proposed products.
Due to continuing R&D activities, the Company
expects to continue to incur additional losses for the foreseeable future. The Company plans to continue to fund its current operations,
as well as other development activities relating to additional product candidates, through future issuances of either debt and/or
equity securities and possibly additional grants from the IIA and other government institutions. The Company’s ability to
raise additional capital in the equity and debt markets is dependent on a number of factors including, but not limited to, the
market demand for the Company’s stock, which itself is subject to a number of development and business risks and uncertainties,
as well as the uncertainty that the Company would be able to raise such additional capital at a price or on terms that are favorable
to the Company.
|
C.
|
Use of estimates
in the preparation of financial statements:
|
The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities in the financial statements and the amounts of expenses
during the reported years. Actual results could differ from those estimates.
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED THE FINANCIAL
STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies applied in
the preparation of the financial statements on a consistent basis, are as follows:
|
A.
|
Basis of presentation
and principles of consolidation
|
The accompanying consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and
include the accounts of the Company and its wholly owned subsidiary, RondinX since its acquisition in November 2017. All intercompany
accounts and transactions have been eliminated in consolidation.
|
B.
|
Functional currency
and foreign currency translation:
|
The functional currency of the Company is the
U.S dollar (“dollar”) since the dollar is the currency of the primary economic environment in which the Company has
operated and expects to continue to operate in the foreseeable future.
Transactions and balances denominated in dollars
are presented at their original amounts.
Transactions and balances denominated in foreign
currencies have been re-measured to dollars in accordance with the provisions of ASC 830-10, “Foreign Currency Translation.”
All transaction gains and losses from remeasurement
of monetary balance sheet items denominated in non-dollar currencies are reflected in the statements of comprehensive loss as
financial income or expenses, as appropriate.
|
C.
|
Cash and cash
equivalents:
|
The Company considers all highly liquid investments,
including unrestricted short-term bank deposits purchased with original maturities of three months or less, to be cash equivalents.
Short-term deposits represent time deposits
placed with banks with original maturities of greater than three months but less than one year. Interest earned is recorded as
interest income in the consolidated statement of comprehensive loss during the years for which the Company held short-term deposits.
The Company has deposits denominated in USD
held with Bank Hapoalim US and Bank Leumi Israel that bear fixed annual interest of 2.9% to 3.6%.
|
E.
|
Property and equipment:
|
Property and equipment are presented at cost
less accumulated depreciation. Depreciation and amortization are calculated based on the straight-line method over the estimated
useful lives of the related assets or terms of the related leases, as follows:
|
|
%
|
|
|
|
Laboratory equipment
|
|
15
|
Computers and software
|
|
33
|
Equipment and furniture
|
|
15
|
Leasehold improvements
|
|
Shorter of lease term or useful life
|
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED THE FINANCIAL
STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(Cont.)
|
E.
|
Property and equipment (Cont.):
|
In accordance with ASC 360-10, management reviews
long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable based on estimated future undiscounted cash flows. If so indicated, an impairment loss would be recognized
for the difference between the carrying amount of the asset and its fair value. For the years ended December 31, 2018,
2017, and 2016, no impairment expenses were recorded.
Intangible R&D assets acquired in a business
combination (IPR&D) are recognized at fair value as of the acquisition date and subsequently accounted for as indefinite-lived
intangible assets until completion or abandonment of the associated R&D efforts.
Indefinite-lived intangible assets are reviewed
for impairment at least annually or whenever there is an indication that the asset may be impaired.
The Company provides for income taxes using
the asset and liability approach. Deferred tax assets and liabilities are recorded based on the differences between the financial
statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse.
Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than
not that some or all of the deferred tax assets will not be realized. As of December 31, 2018 and 2017, the Company had a full
valuation allowance against deferred tax assets.
The Company is subject to the provisions of
ASC 740-10-25, Income Taxes (ASC 740). ASC 740 prescribes a more likely-than-not threshold for the financial statement recognition
of uncertain tax positions. ASC 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken
in a tax return. On a yearly basis, the Company undergoes a process to evaluate whether income tax accruals are in accordance
with ASC 740 guidance on uncertain tax positions. The Company has not recorded any liability for uncertain tax positions for the
years ended December 31, 2018, 2017, or 2016.
|
H.
|
Fair value of financial instruments
|
The Company accounts for financial instruments
in accordance with ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 establishes
a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and
the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820
are described below:
Level 1 – Unadjusted quoted prices in
active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 – Quoted prices in non-active
markets or in active markets for similar assets or liabilities, observable inputs other than quoted prices, and inputs that are
not directly observable but are corroborated by observable market data.
Level 3 – Prices or valuations that require
inputs that are both significant to the fair value measurement and unobservable.
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED THE FINANCIAL
STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(Cont.)
|
H.
|
Fair value of
financial instruments (Cont.)
|
There were no changes in the fair value hierarchy
leveling during the years ended December 31, 2018, 2017, and 2016.
The following table summarizes the fair value
of our financial assets and liabilities that were accounted for at fair value on a recurring basis, by level within the fair value
hierarchy, as of December 31, 2018 and 2017:
|
|
December 31, 2018
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
|
-
|
|
|
|
1,333
|
|
|
|
889
|
|
|
|
889
|
|
|
|
December 31, 2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
|
-
|
|
|
|
-
|
|
|
|
1,001
|
|
|
|
1,001
|
|
Financial instruments with carrying values approximating
fair value include cash and cash equivalents, restricted cash, short-term deposits, other current assets, trade accounts payable
and other current liabilities, due to their short-term nature.
R&D costs are charged to statements of comprehensive
loss as incurred.
|
J.
|
Basic and diluted loss per share:
|
Basic loss per share is computed by dividing
net loss by the weighted average number of Ordinary and Ordinary A Shares outstanding during the year. Diluted loss per share
is computed by dividing net loss by the weighted average number of Ordinary Shares and Ordinary A Shares outstanding during the
year, plus the number of Ordinary Shares and Ordinary A Shares that would have been outstanding if all potentially dilutive Ordinary
Shares and Ordinary A Shares had been issued, using the treasury stock method, in accordance with ASC 260-10 “Earnings per
Share.” Potentially dilutive Ordinary Shares and Ordinary A Shares were excluded from the calculation of diluted loss per
share for all periods presented due to their anti-dilutive effect due to losses in each period.
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED THE FINANCIAL
STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(Cont.)
|
K.
|
Defined contribution plans:
|
Under Israeli employment laws, employees of
the Company are included under Article 14 of the Severance Compensation Act, 1963 (“Article 14”) for a portion of
their salaries. According to Article 14, these employees are entitled to monthly deposits made by the Company on their behalf
with insurance companies.
Payments in accordance with Article 14 release
the Company from any future severance payments (under the Israeli Severance Compensation Act, 1963) with respect of those employees.
The aforementioned deposits are not recorded as an asset on the Company’s balance sheet, and there is no liability recorded
as the Company does not have a future obligation to make any additional payments. The Company’s contributions to the defined
contribution plans are charged to the consolidated statement of comprehensive loss as and when the services are received from
the Company’s employees. Total expenses with respect to these contributions were $283 thousand, $145 thousand, and $42 thousand
for the years ended December 31, 2018, 2017, and 2016, respectively.
|
L.
|
Stock compensation plans:
|
The Company applies ASC 718-10, “Share-Based
Payment,” (“ASC 718-10”) which requires the measurement and recognition of compensation expenses for all share-based
payment awards made to employees and directors including employee stock options under the Company’s stock plans based on
estimated fair values.
ASC 718-10 requires companies to estimate the
fair value of share-based payment awards on the date of grant using an option-pricing model. The fair value of the award is recognized
as an expense over the requisite service periods in the Company’s statements of comprehensive loss. The Company recognizes
share-based award forfeitures as they occur rather than estimate by applying a forfeiture rate.
The Company accounts for share-based compensation
awards to non-employees in accordance with FASB ASC 505-50, “Equity-Based Payments to Non-Employees” (“FASB
ASC 505-50”). Under FASB ASC 505-50, the Company determines the fair value of the warrants or share-based compensation awards
granted as either the fair value of the consideration received, or the fair value of the equity instruments issued, whichever
is more reliably measurable.
All issuances of stock options or other equity
instruments to non-employees as consideration for goods or services received by the Company are accounted for based on the fair
value of the equity instruments issued. Non-employee share-based payments are recorded as an expense over the service period,
as if the Company had paid cash for the services. At the end of each financial reporting period, prior to vesting or prior to
the completion of the services, the fair value of the share-based payments will be remeasured and the non-cash expense recognized
during the period will be adjusted accordingly. Since the fair value of share- based payments granted to non-employees is subject
to change in the future, the amount of the future expense will include fair value remeasurements until the share-based payments
are fully vested or the service completed.
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED THE FINANCIAL
STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(Cont.)
|
L.
|
Stock compensation plans: (Cont.)
|
The Company recognizes compensation expense
for the fair value of non-employee awards over the requisite service period of each award.
The Company estimates the fair value of stock
options granted as equity awards using a Black-Scholes options pricing model. The option-pricing model requires a number of assumptions,
of which the most significant are share price, expected volatility and the expected option term (the time from the grant date
until the options are exercised or expire). Expected volatility is estimated based on volatility of similar companies in the technology
sector. The Company has historically not paid dividends and has no foreseeable plans to issue dividends. The risk-free interest
rate is based on the yield from governmental zero-coupon bonds with an equivalent term. The expected option term is calculated
for options granted to employees and directors using the “simplified” method. Grants to non-employees are based on
the contractual term. Changes in the determination of each of the inputs can affect the fair value of the options granted and
the results of operations of the Company.
|
M.
|
Recent Accounting Standards:
|
In February 2016, the FASB issued ASU 2016-02
“Leases” to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities
on the balance sheet and disclosing key information about leasing arrangements. For operating leases, the ASU requires a lessee
to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, on its
balance sheet. The ASU retains the current accounting for lessors and does not make significant changes to the recognition, measurement,
and presentation of expenses and cash flows by a lessee.
In July 2018, the FASB issued ASU No. 2018-11,
“Targeted Improvements - Leases (Topic 842).” This update provides an optional transition method that allows entities
to elect to apply the standard prospectively at its effective date versus recasting the prior periods presented. If elected, an
entity would recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The
Company plans to adopt this ASU in the first quarter of 2019.
While the Company continues to assess all of
the effects of adoption, it currently believes the most significant effects from implementing this standard relate to the recognition
of new right-of-use (“ROU”) assets and lease liabilities on its balance sheet for office space operating lease. Upon
adoption, the Company currently expects to recognize additional ROU assets and lease liabilities of approximately $377K, based
on the present value of the remaining minimum rental payments under current leasing standards for its existing operating lease.
In June 2016, the FASB issued ASU 2016-13 “Financial
Instruments – Credit Losses” to improve information on credit losses for financial assets and net investment in leases
that are not accounted for at fair value through net income. The ASU replaces the current incurred loss impairment methodology
with a methodology that reflects expected credit losses. The Company plans to adopt this ASU in the first quarter of 2020. The
Company does not expect the adoption of this ASU will have a material impact on its consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-07
“Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.”
These amendments expand the scope of Topic 718, Compensation – Stock Compensation (which currently only includes
share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently,
the accounting for share-based payments to nonemployees and employees will be substantially aligned. The ASU supersedes Subtopic
505-50, Equity – Equity-Based Payments to Non-Employees. The Company plans to adopt this standard in the first quarter of
2019. ASU 2018-07 is not expected to have a material impact on Company’s consolidated financial statements.
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED THE FINANCIAL
STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(Cont.)
|
M.
|
Recent Accounting Standards: (Cont.)
|
In August 2018, the FASB issued ASU 2018-13, “Changes
to Disclosure Requirements for Fair Value Measurements,” which will improve the effectiveness of disclosure requirements
for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements
and is effective for the Company beginning on January 1, 2020. The Company does not expect that this standard will have a material
effect on the Company’s consolidated financial statements.
In November 2018, the FASB issued ASU 2018-18
– “Collaborative Arrangements (Topic 808),” which clarifies the interaction between Topic 808 and Topic 606,
Revenue from Contracts with Customers. The Company expects to adopt this standard in the first quarter of fiscal year 2020. This
standard is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.
NOTE 3 – OTHER RECEIVABLES
|
|
As of December 31,
|
|
|
|
2 0 1 8
|
|
|
2 0 1 7
|
|
|
|
USD In thousands
|
|
|
|
|
|
|
|
|
Government institutions
|
|
|
129
|
|
|
|
199
|
|
Grant income receivable
|
|
|
-
|
|
|
|
128
|
|
Prepaid expenses and others
|
|
|
11
|
|
|
|
-
|
|
|
|
|
140
|
|
|
|
327
|
|
NOTE 4 – PROPERTY AND EQUIPMENT, NET
|
|
As of December 31,
|
|
|
|
2 0 1 8
|
|
|
2 0 1 7
|
|
|
|
USD In thousands
|
|
Cost:
|
|
|
|
|
|
|
Computers and software
|
|
|
272
|
|
|
|
236
|
|
Laboratory equipment
|
|
|
608
|
|
|
|
558
|
|
Equipment and furniture
|
|
|
132
|
|
|
|
120
|
|
Leasehold improvements
|
|
|
214
|
|
|
|
175
|
|
|
|
|
1,226
|
|
|
|
1,089
|
|
|
|
|
|
|
|
|
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
Computers and software
|
|
|
125
|
|
|
|
60
|
|
Laboratory equipment
|
|
|
165
|
|
|
|
59
|
|
Equipment and furniture
|
|
|
4
|
|
|
|
3
|
|
Leasehold improvements
|
|
|
45
|
|
|
|
7
|
|
|
|
|
339
|
|
|
|
129
|
|
|
|
|
887
|
|
|
|
960
|
|
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED THE FINANCIAL
STATEMENTS
NOTE 5 – ACQUISITION OF SUBSIDIARY
On November 19, 2017, the Company
signed a share purchase agreement with the shareholders of RondinX Ltd. In accordance with the share purchase agreement, the Company
acquired 100% control and ownership of RondinX for consideration valued at $ 4.5 million. The consideration included the issuance
of 250,023 Preferred A Shares, the issuance of warrants to purchase an aggregate of 4,380 Series A-1 Preferred Shares, and additional
contingent consideration. The contingent consideration is based on the attainment of future clinical, developmental, regulatory,
commercial and strategic milestones relating to product candidates for treatment of primary sclerosing cholangitis or entry into
qualifying collaboration agreements with certain third parties and may require the Company to issue 234,834 ordinary shares upon
the attainment of certain milestones, as well as make future cash payments and/or issue additional shares of the most senior class
of the Company’s shares authorized or outstanding as of the time the payment is due, or a combination of both of up to $32
million of the Company within ten years from the closing of the agreement and/or the entering of agreements with certain third
parties or their affiliates that include a qualifying up-front fee and is entered into within three years from the closing of
the agreement. The Company has the discretion of determining whether milestone payments will be made in cash or by issuance of
shares.
The
Company completed the RondinX acquisition on November 27, 2017.
The fair value of the consideration transferred for
the business combination was as follows as of November 27, 2017:
|
|
USD In thousands
|
|
|
|
|
|
Cash
|
|
|
124
|
|
Preferred shares
|
|
|
2,938
|
|
Warrants
|
|
|
51
|
|
Contingent consideration
|
|
|
1,391
|
|
|
|
|
4,504
|
|
Net
cash flow of the acquisition:
|
|
USD In thousands
|
|
|
|
|
|
Consideration paid in cash
|
|
|
124
|
|
Net of cash and cash equivalents purchased
|
|
|
(12
|
)
|
|
|
|
112
|
|
The
fair value of assets acquired and liabilities assumed as of November 27, 2017:
|
|
USD In thousands
|
|
|
|
|
|
Cash
|
|
|
12
|
|
Other receivables
|
|
|
26
|
|
Property and equipment, net
|
|
|
14
|
|
In-process R&D
|
|
|
4,556
|
|
Other account payables
|
|
|
(96
|
)
|
Trade account payables
|
|
|
(8
|
)
|
|
|
|
4,504
|
|
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED
THE FINANCIAL STATEMENTS
NOTE
5 – ACQUISITION OF SUBSIDIARY (Cont.)
Intangible
assets acquired in the acquisition were determined to be in-process R&D. In accordance with ASC 350-30-35-17A, R&D assets
acquired in a business combination are considered an indefinite-lived intangible asset until completion or abandonment of the
associated R&D efforts. Once the R&D efforts are complete, the Company will determine the useful life of the R&D assets
and will amortize these assets accordingly in the financial statements. As of December 31, 2018, the in-process R&D efforts
had not yet been completed nor abandoned. Based on management’s analysis, there were no impairment indicators present as
of December 31, 2018 and 2017.
NOTE
6 – OTHER ACCOUNT PAYABLES
|
|
As of December 31,
|
|
|
|
2 0 1 8
|
|
|
2 0 1 7
|
|
|
|
USD In thousands
|
|
|
|
|
|
|
|
|
Employees and related institutions
|
|
|
807
|
|
|
|
621
|
|
Accrued expenses
|
|
|
411
|
|
|
|
260
|
|
Government institutions
|
|
|
120
|
|
|
|
126
|
|
Deferred income
|
|
|
58
|
|
|
|
-
|
|
Other account payables
|
|
|
-
|
|
|
|
31
|
|
|
|
|
1,396
|
|
|
|
1,038
|
|
NOTE
7 – BALANCES AND TRANSACTION WITH RELATED PARTIES
|
A.
|
Balances
with related parties
|
|
|
As of December 31,
|
|
|
|
2 0 1 8
|
|
|
2 0 1 7
|
|
|
|
USD In thousands
|
|
|
|
|
|
|
|
|
Janssen (See 1 below)
|
|
|
50
|
|
|
|
-
|
|
|
|
|
50
|
|
|
|
-
|
|
|
B.
|
Transactions
with related parties
|
|
|
Year ended December 31,
|
|
|
|
2 0 1 8
|
|
|
2 0 1 7
|
|
|
2 0 1 6
|
|
|
|
USD In thousands
|
|
|
|
|
|
|
|
|
|
|
|
R&D expenses (See Note 8D)
|
|
|
-
|
|
|
|
-
|
|
|
|
163
|
|
General and administration expenses (See 2 below)
|
|
|
28
|
|
|
|
251
|
|
|
|
134
|
|
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED
THE FINANCIAL STATEMENTS
NOTE
7 – BALANCES AND TRANSACTION WITH RELATED PARTIES (Cont.)
|
B.
|
Transactions
with related parties (Cont.)
|
|
1.
|
On
October 31, 2018, BiomX entered into a research collaboration agreement with Janssen
Research & Development, LLC (“Janssen”) an affiliate of shareholder Johnson
& Johnson Development Corporation, for a collaboration on biomarker discovery for
inflammatory bowel disease (“IBD”). Under the agreement, BiomX is eligible
to receive fees totaling $167,000 in installments of $50,000 within 60 days of signing
of the agreement, $17,000 upon completion of data processing, and two installments of
$50,000 each, upon delivery of Signature Phase I of the Final Study Report (both terms
defined within the agreement). Unless terminated earlier, this agreement will continue
in effect, until 30 days after the parties complete the research program and BiomX provide
Janssen with a final study report. The Company received the first $50,000 installment
during 2018. This amount was deferred as of December 31, 2018, as the Company has not
yet completed its performance obligation with respect to the agreement.
|
|
2.
|
In
June 2015, an incubator company formation and financing agreement (the “Incubator
Agreement”) was signed between the Company and other investors. According to the
agreement, role of the Incubator (as defined within the agreement) is to provide the
Company offices, labs, administrative, finance, legal and other services. In return for
these services, the Incubator was entitled to receive fees at amount equal to 20% of
the Company’s payroll expenses. Starting from July 2018, the Company no longer
received these services from the Incubator. The Company recorded total expenses of $28
thousand, $251 thousand, and $134 thousand for the years ended December 31, 2018, 2017,
and 2016, respectively, with respect to this agreement.
|
|
3.
|
The
Company entered into a credit line agreement with the Incubator in May 2015 (the “Credit
Line Agreement”), according to which, during the Incubator Period (as defined within
the Credit Line Agreement) of the Company, the Incubator may provide loans to the Company,
upon the Company’s request and subject to the Incubator’s discretion. The
loans bear annual interest equivalent to the minimal interest amount recognized and attributed
by the Israel Tax Authority, and shall be repaid on a date that is the earlier of (i)
the occurrence of an acceleration event, liquidation of the Company, initial public offering
or realization event, (ii) within 14 days from a written notice sent by the Company,
or (iii) within seven months. The Credit Line Agreement ended on May 31, 2018.
|
The
Company received a loan in the amount of $209 thousand during 2015 that was repaid as of December 31, 2015. The Company received
an additional loan during 2016 in the amount of $107 thousand that was repaid in full by December 31, 2016. The loans bore interest
of 2.56% and 3.05% during 2016 and 2015, respectively. Total interest expenses recorded during for the year ended December 31,
2016 was approximately $1 thousand.
|
4.
|
The
Company entered into indemnification agreement with the Incubator on December 13, 2017.
According to the agreement, the aggregate amount of the indemnification shall not exceed
an aggregate of NIS 2,295,000. In addition, the indemnification is limited only to matters
in connection with the Company’s compliance with the IIA regulations and that such
indemnification undertakings will not derogate from any other indemnification undertakings
to which the Company is bound.
|
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED
THE FINANCIAL STATEMENTS
NOTE
8 – COMMITMENTS AND CONTINGENT LIABILITIES
|
A.
|
During
2015, 2016 and 2017, the Company submitted three requests to the IIA for a R&D project
for the technological incubators program. The approved budget per year was NIS 2,700,000
(approximately $726 thousand) per request. According to the IIA directives, the IIA transferred
to the Company 85% of the approved budget and the rest of the budget was funded by certain
shareholders.
|
According
to the agreement with the IIA, the Company will pay royalties of 3% to 3.5% of future sales up to an amount equal to the accumulated
grant received including annual interest of LIBOR linked to the Dollar. The Company may be required to pay additional royalties
upon the occurrence of certain events as determined by the IIA, that are within the control of the Company. No such events have
occurred or were probable of occurrence as of the balance sheet date. with respect to these royalties. Repayment of the grant
is contingent upon the successful completion of the Company’s R&D programs and generating sales. The Company has no
obligation to repay these grants if the R&D program fails, is unsuccessful or aborted or if no sales are generated. The Company
had not yet generated sales as of December 31, 2018; therefore, no liability was recorded in these consolidated financial statements.
Total
research and development income recorded in the consolidated statement of comprehensive loss was $646 thousand, $660 thousand,
and $302 thousand for the years ended December 31, 2018, 2017, and 2016, respectively. As of December 31, 2018, the Company had
a contingent obligation to the IIA in the amount of approximately $1.9 million including annual interest of LIBOR linked to the
Dollar.
|
B.
|
In
June 2015, the Company entered into a Research and License Agreement (the “2015
License Agreement”) as amended with Yeda Research and Development Company Limited
(“Yeda”), according to which Yeda undertakes to procure the performance of
the research. The research includes proof-of-concept studies testing in-vivo phage eradication
against a model bacteria in germ free mice, development of an IBD model in animals under
germ-free conditions and establishing in-vivo method for measuring immune induction capability
(Th1) of bacteria, followed by testing several candidate IBD inducing bacterial strains.
During the research period, as defined in the 2015 License Agreement and subject to the
terms and conditions specified in the 2015 License Agreement. The Company contributed
an aggregate of approximately $1.8 million to the research budget agreed upon in the
license agreement. In addition, Yeda granted the Company with an exclusive worldwide
license for the development, production and sale of the products (the “License”),
as defined in the 2015 License Agreement and subject to the terms and conditions specified
in the 2015 License Agreement. In return for the License, the Company will pay Yeda annual
license fees of approximately $10 thousand and royalties on revenues as defined in the
2015 License Agreement. As the Company has not yet generated revenue from operations,
no provision was included in the financial statements with respect to the 2015 License
Agreement as of December 31, 2018, 2017 and 2016.
|
|
C.
|
In
May 2017, the Company entered into a lease agreement for office space in Ness Ziona,
Israel. The agreement is for five years beginning on June 1, 2017 with an option to extend
for an additional five years. Monthly lease payments under the agreement are approximately
$16,000. As part of the agreement, the Company has obtained a bank guarantee in favor
of the property owner in the amount of approximately $91 thousand representing four monthly
lease payments. Lease expenses recorded in the consolidated statements of comprehensive
loss were $198 thousand and $192 thousand for the years ended December 31, 2018, and
2017, respectively.
|
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED
THE FINANCIAL STATEMENTS
NOTE
8 – COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
|
D.
|
In
May 2017, the Company signed an additional agreement with Yeda (the “2017 License
Agreement”). According to which, Yeda provided a license to the Company. As consideration
for the license, the Company will pay $10,000 for the term of the 2017 License Agreement,
unless earlier terminated by either party, and granted Yeda 244,618 warrants to purchase
Ordinary Shares of the Company at NIS 0.01 nominal value. Refer to Note 10 below for
the terms of the warrants granted. In the event of certain mergers and acquisitions by
the Company, Yeda will be entitled to an amount equivalent to 1% of the consideration
received under such transaction, as adjusted per the terms of the agreement. In addition,
the 2017 License Agreement includes additional consideration contingent upon future sales
or sublicensing revenue. As the Company has not yet generated revenue from operations,
no provision was included in the financial statements with respect to the 2017 License
Agreement as of December 31, 2018, 2017 and 2016.
|
|
E.
|
In
April 2017, the Company signed an exclusive patent license agreement with the Massachusetts
Institute of Technology (“MIT”) covering methods to synthetically engineer
phage. According to the agreement, the Company received an exclusive, royalty-bearing
license to certain patents held by MIT. In return, the Company paid an initial license
fee of $25,000 during the year ended December 31, 2017 and is required to pay certain
license maintenance fees of up to $250,000 in each subsequent year and following the
commercial sale of licensed products. The Company is also required to make payments to
MIT upon the satisfaction of development and commercialization milestones totaling up
to $2.4 million in aggregate as well as royalty payments on future revenues. The consolidated
financial statements do not include liabilities with respect to this agreement as the
Company has not yet generated revenue and the achievement of certain milestones is not
probable.
|
|
F.
|
As
successor in interest to RondinX, the Company is a party to a license agreement dated
March 20, 2016 with Yeda, pursuant to which the Company has a worldwide exclusive license
to Yeda’s know-how, information and patents related to the Company’s meta-genomics
target discovery platform. As consideration for the license, the Company will pay license
fees of $10,000 subject to the terms and conditions of the agreement. Either party has
the option to terminate the agreement at any time by way of notice to the other party
as outlined in the agreement. In addition, the Company will pay a royalty in the low
single digits on revenue of products. As the Company has not yet generated revenue from
operations, no provision was included in the financial statements as of December 31,
2018 with respect to the agreement.
|
|
G.
|
In
December 2017, the Company signed a patent license agreement with Keio University and
JSR Corporation in Japan. According to the agreement, the Company received an exclusive
patent license to certain patent rights related to the Company’s inflammatory bowel
disease program. In return, the Company will pay annual license fees of between $15 thousand
to $25 thousand subject to the terms and conditions specified in the agreement. Additionally,
the Company is obligated to pay contingent consideration based upon the achievement of
clinical and regulatory milestones up to an aggregate of $3.2 million and royalty payments
based on future revenue.
|
The
consolidated financial statements do not include liabilities with respect to this agreement as the Company has not yet generated
revenue and the achievement of certain milestones does not meet the probable threshold.
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED
THE FINANCIAL STATEMENTS
NOTE
9 – CONVERTIBLE NOTES
On
August 9, 2016, the Company and several of its shareholders entered into a Bridge Financing Agreement (the “BFA”).
According to the BFA, the Company issued convertible notes and received an aggregate principal amount of $1,200 thousands. The
convertible notes did not bear interest and were convertible into Preferred A-2 Shares of the Company, according to the conditions
set in the BFA. The fair value of the convertible notes was calculated according to the discount on the Company’s Preferred
A Shares as described in the BFA. The difference between the fair value of the convertible note and principal amount received
was recorded as a finance expense in the consolidated statement of comprehensive loss in the amount of $133 thousand upon issuance
of the note. There was no change in the fair value of the note as of December 31, 2016. During 2017, the convertible notes were
converted into 130,434 Preferred A-2 Shares. Refer to Note 10.
The
Company concluded that the value of the convertible notes were predominantly based on a fixed monetary amount represented by the
10% discount on the Company’s Preferred A Shares. Accordingly, the convertible notes were classified as debt and was measured
at its fair value, pursuant to the provisions of ASC 480-10, “Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity.” The fair value of the convertible note was measured based on observable inputs as the fixed
monetary value of the variable number of Preferred A-2 Shares to be issued upon conversion (Level 2 measurement).
NOTE
10 – SHAREHOLDERS’ EQUITY
Ordinary
Shares:
The
Ordinary Shares entitle their holders the right to receive notice of, and to participate and vote in, all general meetings, to
receive dividends and, subject to the Articles to participate in the distribution of the surplus assets and funds of the Company
in a Liquidation Event (as defined in the Articles). The holder of an Ordinary Share has no other right and such holder may waive,
in writing, any of the rights set forth above, including the rights to receive notices of, and to participate and vote in, all
general meetings; provided, however, that such holder will be entitled to any other mandatory right of a shareholder in a private
Company pursuant to the Companies Law which cannot be waived.
Ordinary
A Shares:
The
Ordinary A Shares are convertible into Ordinary Shares upon the closing of each and every investment round (as defined in the
Articles), by providing a notice to this effect to the Company. The holders of the Ordinary A Shares are entitled to the rights,
preferences, privileges and restrictions granted to and imposed upon the Ordinary Shares. However, the holders of the Ordinary
A Shares do not have voting rights.
Preferred
A Shares:
The
Preferred A Shares are convertible into 234,147 Ordinary Shares, representing a conversion price of $4.10 per share, and entitle
their holders to the rights, preferences, privileges and restrictions granted to and imposed upon the Ordinary Shares and Ordinary
A Shares, as well as the right to participate in a distribution of surplus of assets upon liquidation of the Company, merger and
acquisition event and distribution of dividend by the Company, at an amount equal to their original issue price plus 8% annual
interest accumulated as of the Liquidation Event Date (as defined in the Articles), before any distribution is made to a holder
of any Ordinary Shares.
The
Preferred A Share conversion price is subject to broad weighted average anti-dilution protection in the event of future funding
at an effective share price which is lower than the Preferred A Share conversion price.
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED
THE FINANCIAL STATEMENTS
NOTE
10 – SHAREHOLDERS’ EQUITY (Cont.)
|
A.
|
Share
Capital (Cont.):
|
Preferred
A-1 Shares:
The
Preferred A-1 Shares are convertible into 2,500,511 Ordinary Shares, representing a conversion price of $10.22 per share, and
entitle their holders to the rights, preferences, privileges and restrictions granted to and imposed upon the Preferred A Shares.
Preferred
A-2 Shares:
The
Preferred A-2 Shares are convertible into 130,434 Ordinary Shares, representing a conversion price of $9.20 per share, and entitle
their holders to the rights, preferences, privileges and restrictions granted to and imposed upon the Preferred A Shares.
Preferred
A-3 Shares:
The
Preferred A-3 Shares are convertible into Preferred A-1 Shares upon the closing of each and every investment round (as defined
in the Articles), by providing a notice to this effect to the Company. The Preferred A-3 Shares entitle their holders to the rights,
preferences, privileges and restrictions granted to and imposed upon the Preferred A Shares. However, the Preferred A-3 Shares
holders are not entitled to voting rights.
Preferred
A-4 Shares:
Preferred
A-4 Shares are convertible into 255,320 Ordinary Shares, representing a conversion price of $11.75 per share, and entitle their
holders to the rights, preferences, privileges and restrictions granted to and imposed upon the Preferred A Shares.
Preferred
B Shares:
Preferred
B Shares are convertible into 2,266,314 Ordinary Shares, representing a conversion price of $14.1 per share, and entitle their
holders to the rights, preferences, privileges and restrictions granted to and imposed upon the Preferred A Shares.
Preferred
B Shares entitle their holder to participate in a distribution of surplus of assets upon liquidation of the Company, at an amount
equal to their original issue price plus 8% annual interest accumulated as of the Liquidation Event (as defined in the Articles)
date, before any distribution is made to holder of any Preferred A Shares (i.e., Preferred A Shares, Preferred A-1 Shares, Preferred
A-2 Shares, Preferred A-3 Shares and Preferred A-4 Shares), and any Ordinary Shares.
|
B.
|
Issuance
of Share Capital:
|
In
June 2015, the Company entered into the Incubator Agreement with the Incubator and other investors (the “June 2015 Investors”).
In accordance with the Incubator Agreement, the Company issued 812,000 Ordinary Shares at NIS 0.01 nominal value to the June 2015
Investors and an additional 125,261 Ordinary Shares at NIS 0.01 nominal value to a trustee to be held in trust for the sole purpose
of allocation of the Ordinary Shares to employees and consultants of the Company.
In
addition, the Company issued 234,147 Preferred A Shares at NIS 0.01 nominal value to the investors in consideration for $960 thousands
and granted Yeda warrants to purchase 20,360 Preferred A Shares nominal value NIS 0.01.
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED
THE FINANCIAL STATEMENTS
NOTE
10 – SHAREHOLDERS’ EQUITY (Cont.)
|
B.
|
Issuance
of Share Capital: (Cont.)
|
In
2016, the Company issued convertible notes, bearing an annual interest at a rate of 0%, for an aggregate consideration of $1,200
thousands. The notes were converted during 2017 to 130,434 Preferred A-2 Shares at NIS 0.01 nominal value.
On
February 2017, the Company entered into a share purchase agreement (the “February 2017 SPA”) with new and existing
investors (the “February 2017 Investors”). In accordance with the February 2017 SPA, On February 15, 2017, the Company
issued the February 2017 Investors 1,663,404 Preferred A-1 Shares at NIS 0.01 nominal value (“Preferred A-1 Shares”),
and 130,434 Preferred A-2 Shares at NIS 0.01 nominal value in two tranches as follows:
|
●
|
On
February 15, 2017, the Company issued 831,702 Preferred A-1 Shares for a total consideration
of $8,500 thousands. In addition, the convertible notes in an amount of $1,200 thousands
granted in August 2016 were converted into 130,434 Preferred A-2 Shares at NIS 0.01 nominal
value.
|
|
●
|
On
February 7, 2018, the Company issued 831,702 Preferred A-1 Shares for a total consideration
of $8,500 thousands.
|
On
March 26, 2017 the Company entered into share purchase agreement (the “March 2017 SPA”) with new investors (the “March
2017 Investors”). In accordance with the March SPA, the Company issued to the March 2017 Investors 587,084 Preferred A-1
Shares in two tranches as follows:
|
●
|
On
March 30, 2017, the Company issued 293,542 Preferred A-1 Shares for a total consideration
of $3,000 thousands.
|
|
●
|
On
February 7, 2018, the Company issued 293,542 Preferred A-1 Shares for a total consideration
of $3,000 thousands.
|
On
November 30, 2017, the Company entered into a share purchase agreement (the “November 2017 SPA”) with additional investors
(the “November 2017 Investors”). In accordance with the November 2017 SPA, the Company issued the November 2017 Investors
255,320 Preferred A-4 Shares at NIS 0.01 nominal value in two tranches as follows:
On
December 7, 2017, the Company issued 127,660 Preferred A-4 Shares for a total consideration of $1,500 thousands.
On
February 7, 2018, the Company issued 127,660 Preferred A-4 Shares for a total consideration of $1,500 thousands.
On
November 19, 2017, the Company signed an agreement to purchase 100% of RondinX shares (see also Note 5). The initial consideration
included an issuance of 250,023 Preferred A-1 Shares and 4,380 warrants to purchase Preferred A-1 shares for no additional consideration.
In
November 2018, the Company entered into a share purchase agreement (the “November 2018 SPA”) with new and existing
investors (the “November 2018 Investors”). In accordance with the November 2018 SPA, the Company has committed to
issue to the November 2018 Investors a total of 2,266,314 Preferred B Shares at NIS 0.01 nominal value (the “Preferred B
Shares”) for a total consideration of $31,955 thousands.
On
November 28, 2018 and on December 11, 2018, the Company issued to the November 2018 Investors 2,053,548 and 85,106 Preferred B
Shares, respectively, for a total consideration of $30,155 thousands in accordance with the November 2018 SPA.
On
January 8, 2019, the Company issued to the November 2018 Investors an additional 127,660 Preferred B Shares for a total consideration
of $1,800 thousands in accordance with the November 2018 SPA.
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED
THE FINANCIAL STATEMENTS
NOTE
10 – SHAREHOLDERS’ EQUITY (Cont.)
|
C.
|
Share-based
compensation:
|
The
Company has a plan where it grants option which represents a right to purchase 1 Ordinary Share of the Company in consideration
of the payment of an exercise price. Also, the options were granted in accordance with the “capital gains route” under
section 102 and section 3(i) of the Israeli Income Tax Ordinance and section 409A of the Israeli IRS Code.
In
2015, the Company’s Board of Directors (the “Board”) approved a plan for allocation of options to employees,
service providers and officers. As at December 31, 2018, the number of options available for grant under the approved plan was
294,605.
On
November 2015, the Board approved the grant of 180,139 non- tradable options without consideration to one employee, four consultants
and six employees of the Incubator. Based on the considerations in ASC 718-10, the employees of the Incubator were defined as
employees based on their relationship with the Company.
The
options to two of the consultants were granted at an exercise price of NIS 0.01 per share. 22% of the options vest and become
exercisable on the first and second anniversaries of the vesting commencement date of June 2015. Thereafter, the options vest
and become exercisable in three equal annual installments of 18.67% each.
The
options to the employees of the Incubator and to two consultants were granted at an exercise price of NIS 0.01 per share. 33%
of the options vest and become exercisable on the first anniversary of the vesting commencement date of June 2015. Thereafter,
the options vest and become exercisable in 8 equal quarterly installments of 8.375% each.
The
options to the Company employee were granted at an exercise price of NIS 0.01 per share. 25% of the options vest and become exercisable
on the first anniversary of the vesting commencement date. Thereafter, the options vest and become exercisable in 12 equal quarterly
installments of 6.25% each.
During
2016, the Board approved the grant of an additional 128,260 non-tradable options without consideration to four employees and five
consultants.
The
options to three employees were granted at an exercise price of NIS 0.01 per share.
25%
of the options vest and become exercisable on the first anniversary of the vesting commencement date. Thereafter, the options
vest and become exercisable in 12 equal quarterly installments of 6.25% each.
The
options to one additional employee were granted at an exercise price of $1.3 per share. 13,851 options vest and become exercisable
upon appointment as chief executive officer of the Company. The remainder of the options shall vest as follows: 25% of the options
vest and become exercisable on the first anniversary of the vesting commencement date. Thereafter, the options vest and become
exercisable in 12 equal quarterly installments of 6.25% each.
The
options to two consultants were granted at an exercise price of NIS 0.01 per share.
22%
of the options vest and become exercisable on the first and second anniversaries of the vesting commencement date (June 2015).
Thereafter, the options vest and become exercisable in three equal annual installments of 18.67% each.
The
options to two additional consultants were granted at an exercise price of $1.3 per share.
25%
of the options vest and become exercisable on the first anniversary of the vesting commencement date. Thereafter, the options
vest and become exercisable in 12 equal quarterly installments of 6.25% each.
The
options to one additional consultant were granted at an exercise price of $4.1 per share.
33%
of the options vest and become exercisable on the first anniversary of the vesting commencement date. Thereafter, the options
vest and become exercisable in 8 equal quarterly installments of 8.375% each.
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED
THE FINANCIAL STATEMENTS
NOTE
10 – SHAREHOLDERS’ EQUITY (Cont.)
|
C.
|
Share-based
compensation: (Cont.)
|
During
2017, the Board approved the grant of an additional 448,775 non-tradable options without consideration to 29 employees and 5 consultants.
The
options to 29 employees and 3 consultants were granted at an exercise price of $4.089 per share. 25% of the options vest and become
exercisable on the first anniversary of the vesting commencement date. Thereafter, the options vest and become exercisable in
12 equal quarterly installments of 6.25% each.
The
options to 2 additional consultants were granted at an exercise price of NIS 0.01 per share. 22% of the options vest and become
exercisable on the first and second anniversaries of the vesting commencement date (June 2015). Thereafter, the options vest and
become exercisable in three equal annual installments of 18.67% each.
During
October 2017, 4,564 options were exercised to purchase Ordinary Shares at an exercise price of NIS 0.01 per share.
During
2018, the Board approved the grant of an additional 325,026 non-tradable options without consideration to 27 employees and 82,513
non-tradable options without consideration to 2 consultants.
362,555
options were granted at an exercise prices of $4.771-$4.909 per share.
25%
of the options vest and become exercisable on the first anniversary of the vesting commencement date. Thereafter, the options
vest and become exercisable in 12 equal quarterly installments of 6.25% each.
44,984
options were granted at an exercise price of $4.089 per share and vest on variable vesting dates.
During
2018, 12,797 options were exercised to purchase Ordinary Shares at an exercise price of NIS 0.01 per share.
Certain
senior employees are entitled to full acceleration of their unvested options upon the occurrence of cumulative two certain events.
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED
THE FINANCIAL STATEMENTS
NOTE
10 – SHAREHOLDERS’ EQUITY (Cont.)
|
C.
|
Share-based
compensation: (Cont.)
|
The
fair value of each option was estimated as of the date of grant or reporting period using the Black-Scholes option-pricing model.
The
fair value of options was estimated at the date of grant using the following assumptions:
|
|
2 0 1 8
|
|
2 0 1 7
|
|
2016
|
|
|
|
|
|
|
|
Underlying value of ordinary share ($)
|
|
4.1-4.9
|
|
1.3-4.1
|
|
1.3
|
Exercise price ($)
|
|
4.1-4.9
|
|
1.3-4.1
|
|
0.003-4.1
|
Expected volatility (%)
|
|
93.1
|
|
93.1
|
|
93.1
|
Term of the option (years)
|
|
6.25
|
|
6.25
|
|
6.9
|
Risk-free interest rate (%)
|
|
2.25-3.05
|
|
1.35-2.25
|
|
1.35-2.25
|
The
cost of the benefit embodied in the options granted in 2018, 2017, and 2016 based on their fair value as at the grant date, is
estimated to be $1,451 thousand, $2,503 thousand, and $215 thousand, respectively. These amounts will be recognized in statements
of comprehensive loss over the vesting period.
Warrants:
|
1.
|
In
May 2017, in accordance with the 2017 License Agreement (see also Note 8D), the Company
issued to Yeda, for no consideration, 244,618 warrants to purchase Ordinary Shares at
NIS 0.01 nominal value. The expense recognized for the years ended December 31, 2017
and 2018 were $584 thousand and $704 thousand, respectively which were included in research
and development expenses.
|
97,847
warrants were fully vested and exercisable on the date of their issuance. The remainder of the warrants will vest and become exercisable
subject to achievement of certain milestones specified in the agreement as follows:
|
a.
|
73,385
upon the filing of a patent application covering any Discovered Target or a Product,
|
|
b.
|
48,924
upon achievement of the earlier of the following milestone by the Company:
|
|
(i)
|
execution
of an agreement with a pharmaceutical company with respect to the commercialization of
any of the Company’s licensed technology or the Consulting IP or a Product (both
defined in the 2017 License Agreement ) or
|
|
(ii)
|
the
filing of a patent application covering any Discovered Target (as defined in the 2017
License Agreement) or a Product.
|
|
c.
|
24,462
upon completion of a Phase 1 clinical trial in respect of a Product.
|
The
fair value of the unvested portion of the warrants granted was remeasured each reporting period as the performance commitment
date had not yet been achieved.
|
2.
|
In
November 2017, in accordance with the RondinX share purchase agreement (see also Note
5), the Company issued to Yeda and 2 consultants, for no consideration, 4,380 warrants
to purchase Preferred A-1 Shares at NIS 0.01 nominal value.
|
The
warrants were fully vested and exercisable on the date of their issuance.
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED
THE FINANCIAL STATEMENTS
NOTE
10 – SHAREHOLDERS’ EQUITY (Cont.)
|
C.
|
Share-based
compensation: (Cont.)
|
|
(1)
|
A
summary of options granted to purchase the Company’s Ordinary Shares under the
Company’s share option plan is as follows:
|
|
|
For
year ended December 31,
|
|
|
|
2
0 1 8
|
|
|
|
Employees
|
|
|
Consultants
|
|
|
|
Number
of Options
|
|
|
Weighted
average exercise price
|
|
|
Aggregate
intrinsic value
|
|
|
Number
of Options
|
|
|
Weighted
average exercise price
|
|
|
Aggregate
intrinsic value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the beginning
of year
|
|
|
529,001
|
|
|
|
3.13
|
|
|
|
840
|
|
|
|
214,447
|
|
|
|
0.51
|
|
|
|
915
|
|
Granted
|
|
|
325,026
|
|
|
|
4.785
|
|
|
|
|
|
|
|
82,513
|
|
|
|
4.909
|
|
|
|
|
|
Forfeited
|
|
|
(74,671
|
)
|
|
|
3.95
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(12,797
|
)
|
|
|
(*
|
)
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of year
|
|
|
766,559
|
|
|
|
3.81
|
|
|
|
849
|
|
|
|
296,960
|
|
|
|
1.659
|
|
|
|
944
|
|
Vested at year end
|
|
|
262,743
|
|
|
|
|
|
|
|
|
|
|
|
133,651
|
|
|
|
|
|
|
|
|
|
Weighted
average remaining contractual life – years as of December 31, 2018
|
|
|
8.65
|
|
|
|
|
|
|
|
|
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
For year ended December 31,
|
|
|
|
2 0 1 7
|
|
|
|
Employees
|
|
|
Consultants
|
|
|
|
Number of Options
|
|
|
Weighted average exercise
price
|
|
|
Aggregate intrinsic value
|
|
|
Number of Options
|
|
|
Weighted average exercise
price
|
|
|
Aggregate intrinsic value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the beginning of year
|
|
|
146,233
|
|
|
|
0.62
|
|
|
|
105
|
|
|
|
155,303
|
|
|
|
0.36
|
|
|
|
152
|
|
Granted
|
|
|
389,631
|
|
|
|
4.09
|
|
|
|
|
|
|
|
59,144
|
|
|
|
0.89
|
|
|
|
|
|
Forfeited
|
|
|
(2,299
|
)
|
|
|
(*
|
)
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4,564
|
)
|
|
|
(*
|
)
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of year
|
|
|
529,001
|
|
|
|
3.13
|
|
|
|
840
|
|
|
|
214,447
|
|
|
|
0.51
|
|
|
|
915
|
|
Vested at year end
|
|
|
104,628
|
|
|
|
|
|
|
|
|
|
|
|
88,106
|
|
|
|
|
|
|
|
|
|
Weighted average remaining contractual life – years as of December
31, 2018
|
|
|
9.08
|
|
|
|
|
|
|
|
|
|
|
|
8.45
|
|
|
|
|
|
|
|
|
|
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED
THE FINANCIAL STATEMENTS
NOTE
10 – SHAREHOLDERS’ EQUITY (Cont.)
|
C.
|
Share-based
compensation: (Cont.)
|
|
|
For year ended December 31,
|
|
|
|
2 0 1 6
|
|
|
|
Employees
|
|
|
Consultants
|
|
|
|
Number of Options
|
|
|
Weighted average exercise
price
|
|
|
Aggregate intrinsic value
|
|
|
Number of Options
|
|
|
Weighted average exercise
price
|
|
|
Aggregate intrinsic value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the beginning of period
|
|
|
64,339
|
|
|
|
(*
|
)
|
|
|
86
|
|
|
|
115,800
|
|
|
|
(*
|
)
|
|
|
150
|
|
Granted
|
|
|
88,757
|
|
|
|
1.14
|
|
|
|
|
|
|
|
39,503
|
|
|
|
1.14
|
|
|
|
|
|
Forfeited
|
|
|
(6,863
|
)
|
|
|
(*
|
)
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of year
|
|
|
146,233
|
|
|
|
0.62
|
|
|
|
105
|
|
|
|
155,303
|
|
|
|
0.36
|
|
|
|
152
|
|
Vested at year end
|
|
|
29,257
|
|
|
|
|
|
|
|
|
|
|
|
43,474
|
|
|
|
|
|
|
|
|
|
Weighted average remaining contractual life –
years as of December 31, 2016
|
|
|
9.43
|
|
|
|
|
|
|
|
|
|
|
|
9.132
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued to Yeda
|
|
|
|
Number of Options
|
|
|
Weighted average exercise
price
|
|
|
Aggregate
intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Granted
|
|
|
244,618
|
|
|
|
0.003
|
|
|
|
|
|
Outstanding at the December 31, 2017 and December 31, 2018
|
|
|
244,618
|
|
|
|
0.003
|
|
|
|
1,200
|
|
Vested at the December 31, 2017 and December 31, 2018
|
|
|
97,847
|
|
|
|
|
|
|
|
|
|
Weighted average remaining contractual life – years as of December 31, 2017
|
|
|
7.36
|
|
|
|
|
|
|
|
|
|
Weighted average remaining contractual life – years as of December 31, 2018
|
|
|
6.36
|
|
|
|
|
|
|
|
|
|
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED
THE FINANCIAL STATEMENTS
NOTE
10 – SHAREHOLDERS’ EQUITY (Cont.)
|
C.
|
Share-based
compensation: (Cont.)
|
|
(2)
|
The
following table sets forth the total share-based payment expenses resulting from options
granted, included in the statements of operation:
|
|
|
Year ended December 31,
|
|
|
|
2 0 1 8
|
|
|
2 0 1 7
|
|
|
2 0 1 6
|
|
|
|
USD In thousands
|
|
|
|
|
|
|
|
|
|
|
|
R&D
|
|
|
623
|
|
|
|
952
|
|
|
|
195
|
|
General and administrative
|
|
|
328
|
|
|
|
358
|
|
|
|
52
|
|
|
|
|
951
|
|
|
|
1,310
|
|
|
|
247
|
|
The
Company recognized share-based compensation expenses in connection with options granted to directors and executive officers of
the Company in the amount of $405 thousand, $333 thousand, and $107 thousand for the years ended December 31, 2018, 2017, and
2016, respectively.
The
total unrecognized compensation expense was $3,026 and $1,446 thousand as of December 31, 2018 and 2017, respectively. These expenses
will be recognized over a period of approximately 4 years.
NOTE
11 – R&D EXPENSES, NET
|
|
Year ended December 31,
|
|
|
|
2 0 1 8
|
|
|
2 0 1 7
|
|
|
2 0 1 6
|
|
|
|
USD In thousands
|
|
|
|
|
|
|
|
|
|
|
|
Professional service and subcontractors
|
|
|
4,365
|
|
|
|
1,415
|
|
|
|
676
|
|
Salaries and related expenses
|
|
|
3,972
|
|
|
|
1,865
|
|
|
|
480
|
|
Share based payments
|
|
|
623
|
|
|
|
952
|
|
|
|
195
|
|
Depreciation
|
|
|
210
|
|
|
|
95
|
|
|
|
23
|
|
Materials and supplies
|
|
|
611
|
|
|
|
509
|
|
|
|
77
|
|
|
|
|
9,781
|
|
|
|
4,836
|
|
|
|
1,451
|
|
Less - Grants from the IIA
|
|
|
(646
|
)
|
|
|
(660
|
)
|
|
|
(302
|
)
|
|
|
|
9,135
|
|
|
|
4,176
|
|
|
|
1,149
|
|
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED
THE FINANCIAL STATEMENTS
NOTE
12 – GENERAL AND ADMINISTRATIVE EXPENSES
|
|
Year ended December 31,
|
|
|
|
2 0 1 8
|
|
|
2 0 1 7
|
|
|
2 0 1 6
|
|
|
|
USD In thousands
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and related expenses
|
|
|
1,369
|
|
|
|
847
|
|
|
|
223
|
|
Incubator overhead
|
|
|
28
|
|
|
|
251
|
|
|
|
134
|
|
Share based payments
|
|
|
328
|
|
|
|
358
|
|
|
|
52
|
|
Professional services
|
|
|
284
|
|
|
|
341
|
|
|
|
53
|
|
Travel expenses
|
|
|
258
|
|
|
|
186
|
|
|
|
96
|
|
Office expenses
|
|
|
189
|
|
|
|
117
|
|
|
|
16
|
|
Recruitment expenses
|
|
|
209
|
|
|
|
47
|
|
|
|
-
|
|
Rent and rent related expenses
|
|
|
333
|
|
|
|
194
|
|
|
|
-
|
|
Other
|
|
|
362
|
|
|
|
195
|
|
|
|
46
|
|
|
|
|
3,360
|
|
|
|
2,536
|
|
|
|
620
|
|
NOTE
13 – INCOME TAXES
|
A.
|
On
December 29, 2016, the Economic Efficiency Law (the “EEL”)- 2016 was enacted,
which states that the Corporate Tax Rate (as defined in the EEL) in 2017 will be reduced
from 25% to 24% on income earned from January 1, 2017, and will continue to be reduced
to 23% in 2018 and thereafter on income earned from January 1, 2018.
|
|
B.
|
As
of December 31, 2018 and 2017 the Company had total net operating losses in Israel of
approximately $10,556 and $5,689, respectively which may be carried forward and offset
against taxable income in the future for an indefinite period.
|
|
C.
|
The
Company is still in its development stage and has not yet generated revenue, therefore,
it is more likely than not that sufficient taxable income will not be available for the
tax losses to be utilized in the future. Therefore, a valuation allowance was recorded
to reduce the deferred tax assets to its recoverable amounts.
|
|
|
As of December 31,
|
|
|
|
2 0 1 8
|
|
|
2 0 1 7
|
|
|
|
USD In thousands
|
|
|
|
|
|
|
|
|
Net operating loss carry-forward
|
|
|
10,556
|
|
|
|
5,689
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
2,430
|
|
|
|
1,
308
|
|
Valuation allowance
|
|
|
(2,430
|
)
|
|
|
(1,308
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
BIOMX
LTD.
(FORMERLY
KNOWN AS: MBcure LTD)
NOTES TO CONSOLIDATED
THE FINANCIAL STATEMENTS
NOTE
13 – INCOME TAXES (Cont.)
|
D.
|
Reconciliation
of Income Taxes:
|
The
following is a reconciliation of the taxes on income assuming that all income is taxed at the ordinary statutory corporate tax
rate in Israel and the effective income tax rate:
|
|
Years ended December 31,
|
|
|
|
2 0 1 8
|
|
|
2 0 1 7
|
|
|
2 0 1 6
|
|
|
|
(in thousands)
|
|
Net loss as reported in the statements
of comprehensive loss
|
|
|
12,720
|
|
|
|
6,433
|
|
|
|
1,900
|
|
Statutory tax rate
|
|
|
23
|
%
|
|
|
24
|
%
|
|
|
25
|
%
|
Income tax under statutory tax rate
|
|
|
2,926
|
|
|
|
1,544
|
|
|
|
475
|
|
Change in valuation allowance
|
|
|
(2,926
|
)
|
|
|
(1,544
|
)
|
|
|
(475
|
)
|
Actual income tax
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
NOTE
14 – BASIC AND DILUTED NET LOSS PER SHARE
The basic and diluted
net loss per share and weighted average number of Ordinary Shares and Ordinary A Shares used in the calculation of basic and diluted
net loss per share are as follows (in thousands, except share and per share data):
|
|
Years ended December 31,
|
|
|
|
2 0 1 8
|
|
|
2 0 1 7
|
|
|
2 0 1 6
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
|
12,720
|
|
|
|
6,433
|
|
|
|
1,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to holders of Preferred Shares
|
|
|
2,533
|
|
|
|
961
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss used in the calculation of basic net loss per share
|
|
|
15,253
|
|
|
|
7,394
|
|
|
|
1,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
|
18.41
|
|
|
|
9.08
|
|
|
|
2.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of Ordinary Shares and Ordinary A Shares
|
|
|
828,295
|
|
|
|
813,902
|
|
|
|
812,000
|
|
As the inclusion
of Ordinary Share or Ordinary A Share equivalents in the calculation would be anti-dilutive for all periods presented, diluted
net loss per share is the same as basic net loss per share.
NOTE
15 – SUBSEQUENT EVENTS
In
accordance with FASB ASC 855-10-50-1, the Company has analyzed its operations subsequent to December 31, 2018 and up until July
17, 2019, the date these consolidated financial statements were issued, and has determined that it does not have any material
subsequent events to disclose except as follows:
On
January 8, 2019, the Company issued 127,660 Preferred B Shares for a total consideration of $1,800 thousands in accordance with
the November 2018 SPA.
In
April 2019, the Company signed additional patent license agreement with Keio University and JSR Corporation in Japan. According
to the agreement, the Company received an exclusive patent license to certain patent rights related to the Company’s Primary
Sclerosing Cholangitis program. In return, the Company is required to pay annual license fees as well as a contingent consideration
based upon the achievement of clinical and regulatory milestones up to an aggregate of $3.2 million and royalty payments based
on future revenue. To date, the Company has not yet generated revenue from product sale.
Annex A
Execution
Copy
MERGER
AGREEMENT
dated
July
16, 2019
by
and among
BiomX
Ltd., an Israeli company (the “Company”),
Shareholder
Representative Services LLC, as the Shareholders’ Representative (the
“Shareholders’ Representative”),
Chardan
Healthcare Acquisition Corp., a Delaware corporation (the “Purchaser”),
and
CHAC
Merger Sub Ltd., an Israeli company (“Merger Sub”)
TABLE
OF CONTENTS
MERGER
AGREEMENT
This
MERGER AGREEMENT (the “Agreement”), dated as of July 16, 2019 (the “Signing Date”), by and
among BiomX Ltd., an Israeli company (the “Company”), Shareholder Representative Services LLC, a Colorado limited
liability company, solely in its capacity as the representative, agent and attorney-in-fact of the Company Securityholders (the
“Shareholders’ Representative”), Chardan Healthcare Acquisition Corp., a Delaware corporation (the “Purchaser”)
and CHAC Merger Sub Ltd., an Israeli company (“Merger Sub”).
W
I T N E S E T H:
|
A.
|
The
Company and/or its Subsidiaries (the “Company Group”) are in the business
of developing customized phage therapies that target harmful bacteria in chronic diseases
(which, together with all other businesses and activities conducted by the Company Group,
is hereinafter referred to as the “Business”);
|
|
B.
|
The
Purchaser is a blank check company formed for the sole purpose of entering into a share
exchange, asset acquisition, share purchase, recapitalization, reorganization or other
similar business combination with one or more businesses or entities and Merger Sub is
a wholly-owned subsidiary of the Purchaser;
|
|
C.
|
The
Company Securityholders are listed on Schedule 1.14 hereto and own 100% of the issued
and outstanding Company Securities; and
|
|
D.
|
WHEREAS,
contemporaneously with the execution of, and as a condition and an inducement to Purchaser
and the Company to enter into, this Agreement, each holder of Company Securities set
forth on Schedule 1 are entering into and delivering Support Agreements, substantially
in the form attached hereto as Exhibit A (each, a “Support Agreement”).
|
|
E.
|
WHEREAS,
contemporaneously with the execution of, and as a condition and an inducement to Purchaser
and the Company to enter into, this Agreement, Chardan Investments LLC, Purchaser and
the Company have executed and delivered a Backstop Agreement, substantially in the form
attached hereto as Exhibit B (the “Backstop Agreement”).
|
|
F.
|
Merger
Sub will merge with and into the Company (the “Merger”), after which
the Company will be the surviving company (the “Surviving Corporation”)
and a wholly-owned subsidiary of the Purchaser.
|
The
parties accordingly agree as follows:
ARTICLE
I
DEFINITIONS
The
following terms, as used herein, have the following meanings:
1.1
“102 Company Options” means Equity Awards granted and subject to Taxes pursuant to Section 102(b)(2) of the
Ordinance.
1.2
“102 Company Securities” means 102 Company Options and 102 Company Shares, collectively.
1.3
“102 Company Shares” means Ordinary Shares issued upon vesting of or exercise of or otherwise in connection
to 102 Company Options.
1.4
“102 Trustee” means Altshuler Shaham Trusts Ltd. which serves as the trustee of the Equity Incentive Plan and
the awards granted thereunder pursuant to Section 102(b)(2) of the Ordinance.
1.5
“3(i) Company Option” means Equity Awards granted and subject to tax pursuant to Section 3(i) of the Ordinance.
1.6
“Action” means any legal action, suit, claim, hearing or proceeding, including any audit, claim or assessment
for Taxes or otherwise, by or before any Authority.
1.7
“Additional Agreements” mean the Voting Agreement substantially in the form attached hereto as Exhibit C
(the “Voting Agreement”), the Registration Rights Agreement, Escrow Agreement, the Support Agreements,
the Backstop Agreement, and the engagement letter entered into by the Shareholders’ Representative, the Company, and certain
of the Company Securityholders.
1.8
“Affiliate” means, with respect to any Person, any other Person directly or indirectly Controlling, Controlled
by, or under common Control with such Person.
1.9
“Aggregate Investment Amount” means the aggregate amount of immediately available funds contained in the Trust
Account (net of any Purchaser Redemption Amount) immediately prior to the Closing (but prior to the payment of any expenses of
Purchaser), plus the immediately available funds contained in the New Investment Escrow Account available for release to Purchaser
immediately following the Closing, if any.
1.10
“Authority” means any governmental, regulatory or administrative body, agency or authority, any court or judicial
authority, any arbitrator, or any public, private or industry regulatory authority, whether international, national, foreign,
Federal, state, or local.
1.11
“Books and Records” means all books and records, ledgers, employee records, customer lists, files, correspondence,
and other records of every kind (whether written, electronic, or otherwise embodied) owned or controlled by a Person in which
a Person’s assets, the business or its transactions are otherwise reflected, other than stock books and minute books.
1.12
“Business Day” means any day other than a Saturday, Sunday or a legal holiday on which commercial banking institutions
in New York, New York are authorized to close for business.
1.13
“Closing” has the meaning set forth in Section 2.6.
1.14
“Closing Consideration Conversion Ratio” shall mean a number of shares of Purchaser Common Stock equal to the
quotient obtained by dividing (a) the Closing Payment Shares; by (b) the Fully Diluted Vested Shares, in each case, as listed
on Schedule 1.14.
1.15
“Closing Payment Shares” means an aggregate of 16,625,000 shares of Purchaser Common Stock, which includes
the Escrow Shares.
1.16
“COBRA” means collectively, the requirements of Sections 601 through 606 of ERISA and Section 4980B of the
Code.
1.17
“Code” means the Internal Revenue Code of 1986, as amended.
1.18
“Company Capital Stock” has the meaning set forth in Section 5.5.
1.19
“Company Securities” means the Ordinary Shares, Ordinary A Shares, Preferred A Shares, Preferred A-1 Shares,
Preferred A-2 Shares, Preferred A-3 Shares, Preferred A-4 Shares, Preferred B Shares, Equity Awards, Ordinary Warrants and Preferred
A-1 Warrants.
1.20
“Company Securityholder” means each Person who holds Company Securities immediately prior to the Effective
Time and listed on Schedule 1.14 hereto.
1.21
“Company Securityholder Purchase Agreements” means those certain BiomX Stakeholder Stock Purchase Agreements,
substantially in the form attached hereto as Exhibit D, to be entered into among Purchaser, the Company and Persons who
hold Company Securities as of the date hereof together with their Affiliates, pursuant to which such Person’ (or their Affiliates)
shall purchase shares of Purchaser Common Stock from Persons who hold shares of Purchaser Common Stock as of the date of this
Agreement.
1.22
“Contracts” means the Leases and all other contracts, agreements, leases (including equipment leases, car leases
and capital leases), licenses, Permits, commitments, client contracts, statements of work (SOWs), sales and purchase orders and
similar instruments, oral or written, to which any member of the Company Group is a party or by which any of its respective assets
are bound.
1.23
“Control” of a Person means the possession, directly or indirectly, of the power to direct or cause the direction
of the management and policies of such Person, whether through the ownership of voting securities, by contract, or otherwise.
“Controlled”, “Controlling” and “under common Control with” have correlative meanings. Without
limiting the foregoing, a Person (the “Controlled Person”) shall be deemed Controlled by (a) any other Person
(the “10% Owner”) (i) owning beneficially, as meant in Rule 13d-3 under the Exchange Act, securities entitling
such Person to cast 10% or more of the votes for election of directors or equivalent governing authority of the Controlled Person
or (ii) entitled to be allocated or receive 10% or more of the profits, losses, or distributions of the Controlled Person; (b)
an officer, director, general partner, partner (other than a limited partner), manager, or member (other than a member having
no management authority that is not a 10% Owner) of the Controlled Person; or (c) a spouse, parent, lineal descendant, sibling,
aunt, uncle, niece, nephew, mother-in-law, father-in-law, sister-in-law, or brother-in-law of an Affiliate of the Controlled Person
or a trust for the benefit of an Affiliate of the Controlled Person or of which an Affiliate of the Controlled Person is a trustee.
1.24
“Environmental Laws” shall mean all Laws that prohibit, regulate or control any Hazardous Material or any Hazardous
Material Activity, including, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Resource
Recovery and Conservation Act of 1976, the Federal Water Pollution Control Act, the Clean Air Act, the Hazardous Materials Transportation
Act and the Clean Water Act.
1.25
“Equity Award” means the options (“Company Options”) and restricted stock units outstanding
under the Equity Incentive Plan.
1.26
“Equity Incentive Plan” means the Company’s 2015 Employee Stock Option Plan.
1.27
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.
1.28
“Escrow Agent” means Continental Stock Transfer & Trust Company.
1.29
“Escrow Agreement” means an agreement in substantially the form attached hereto as Exhibit E, between
the Shareholders’ Representative, the Escrow Agent and the Purchaser with respect to the Escrow Shares to reflect the terms
set forth in Section 11.3.
1.30
“Escrow Participant” means each Person who holds Ordinary Shares, Ordinary A Shares, Preferred A Shares, Preferred
A-1 Shares, Preferred A-2 Shares, Preferred A-3 Shares, Preferred A-4 Shares, Preferred B Shares, Equity Awards, Ordinary Warrants
or Preferred A-1 Warrants, in each case, that are vested as of immediately prior to the Effective Time.
1.31
“Escrow Participant Company Securities” means the sum, without duplication, of: (a) the sum of the aggregate
number of Ordinary Shares plus the aggregate number of Ordinary A Shares, in each case, that are issued and outstanding immediately
prior to the Effective Time; plus (b) the aggregate number of Ordinary Shares and Ordinary A Shares issuable upon conversion of
all Preferred A Shares, Preferred A-1 Shares, Preferred A-2 Shares, Preferred A-3 Shares, Preferred A-4 Shares and Preferred B
Shares, in each case, that are issued and outstanding immediately prior to the Effective Time; plus (iii) the aggregate number
of Ordinary Shares and Ordinary A Shares issuable upon exercise or conversion of all Ordinary Warrants and Preferred A-1 Warrants,
in each case, that are vested as of immediately prior to the Effective Time.
1.32
“Escrow Pro Rata Portion” shall mean, with respect to each Escrow Participant, an amount equal to the quotient
(expressed as a percentage) obtained by dividing: (a) the number of shares of vested Company Capital Stock held by such Escrow
Participant as of immediately prior to the Effective Time (on an as converted to Ordinary Share or Ordinary A Share basis assuming
the exercise or conversion of all Escrow Participant Company Securities held by such Escrow Participant); by (b) the total number
of vested shares of Company Capital Stock held by all Escrow Participants as of immediately prior to the Effective Time (on an
as converted to Ordinary Share or Ordinary A Share basis assuming the exercise or conversion of all Escrow Participant Company
Securities held by such Escrow Participant).
1.33
“Escrow Shares” means a number of shares of Purchaser Common Stock equal to: (a) ten percent (10%); multiplied
by (b) the number shares of Purchaser Common Stock otherwise issuable to Company Securityholders pursuant Section 4.1(a) plus
the number of shares of Purchaser Common Stock issuable upon conversion of each Ordinary Warrant and Preferred A-1 Warrant held
by an Escrow Participant and assumed by Purchaser as of the Effective Time in accordance with Section 4.1(c) and that are vested
as of immediately prior to the Effective Time.
1.34
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
1.35
“Fully Diluted Vested Shares” means the sum as set forth on Schedule 1.14, without duplication, of: (a) the
sum of the aggregate number of Ordinary Shares plus the aggregate number of Ordinary A Shares, in each case, that are issued and
outstanding immediately prior to the Effective Time; plus (b) the aggregate number of Ordinary Shares and Ordinary A Shares issuable
upon conversion of all Preferred A Shares, Preferred A-1 Shares, Preferred A-2 Shares, Preferred A-3 Shares, Preferred A-4 Shares
and Preferred B Shares, in each case, that are issued and outstanding immediately prior to the Effective Time; plus (iii) the
aggregate number of Ordinary Shares and Ordinary A Shares issuable upon exercise or conversion of all Equity Awards, Ordinary
Warrants and Preferred A-1 Warrants, in each case, that are vested as of immediately prior to the Effective Time.
1.36
“Hazardous Material” shall mean any material, emission, chemical, substance or waste that has been designated
by any Authority to be radioactive, toxic, hazardous, a pollutant or a contaminant.
1.37
“Hazardous Material Activity” shall mean the transportation, transfer, recycling, storage, use, treatment,
manufacture, removal, remediation, release, exposure of others to, sale, labeling, or distribution of any Hazardous Material or
any product or waste containing a Hazardous Material, or product manufactured with ozone depleting substances, including, any
required labeling, payment of waste fees or charges (including so-called e-waste fees) and compliance with any recycling, product
take-back or product content requirements.
1.38
“IPO” means the initial public offering of Purchaser pursuant to a prospectus dated December 18, 2018.
1.39
“Indebtedness” means with respect to any Person, (a) all obligations of such Person for borrowed money, or
with respect to deposits or advances of any kind (including amounts by reason of overdrafts and amounts owed by reason of letter
of credit reimbursement agreements), including with respect thereto, all interests, fees and costs, (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale
or other title retention agreements relating to property purchased by such Person, (d) all obligations of such Person issued or
assumed as the deferred purchase price of property or services (other than accounts payable to creditors for goods and services
incurred in the ordinary course of business), (e) all Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any lien or security interest on property owned or acquired
by such Person, whether or not the obligations secured thereby have been assumed, (f) all obligations of such Person under leases
required to be accounted for as capital leases under U.S. GAAP, (g) all guarantees by such Person, (h) all liability of such Person
with respect to any hedging obligations, including interest rate or currency exchange swaps, collars, caps or similar hedging
obligations, and (i) any agreement to incur any of the same. For informational purposes, Indebtedness shall include any grants
or loans that are not carried as tangible liabilities on the Financial Statements on a stand-alone basis (whether or not such
liabilities are included in the footnotes to the Financial Statements), including the Company’s obligations under the Contracts
set forth on Schedule 5.11(c).
1.40
“Intellectual Property Right” means any trademark, service mark, registration thereof or application for registration
therefor, trade name, license, invention, patent, patent application, trade secret, trade dress, know-how, copyright, copyrightable
materials, copyright registration, application for copyright registration, software programs, data bases, u.r.l.s., and any other
type of proprietary intellectual property right, and all embodiments and fixations thereof and related documentation and registrations
and all additions, improvements and accessions thereto, and with respect to each of the forgoing items in this definition, which
is owned or licensed or filed by any member of the Company Group, or used or held for use in the Business, whether registered
or unregistered or domestic or foreign.
1.41
“Inventory” is defined in the UCC.
1.42
“ITA” means the Israel Tax Authority.
1.43
“Law” means any domestic or foreign, federal, state, municipality or local law, statute, ordinance, code, rule,
or regulation.
1.44
“Leases” means the leases set forth on Schedule 1.44 attached hereto, together with all fixtures and improvements
erected on the premises leased thereby.
1.45
“Lien” means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such property or asset, and any conditional sale or voting agreement or proxy, including
any agreement to give any of the foregoing.
1.46
“Material Adverse Effect” or “Material Adverse Change” means a material adverse change or
a material adverse effect upon the assets, liabilities, financial condition, net worth, management, earnings, cash flows, business,
operations or properties of the Company Group and the Business, taken as a whole, provided, however, that “Material Adverse
Effect” or “Material Adverse Change” shall not include any event, occurrence, fact, condition or change, directly
or indirectly, arising out of or attributable to: (i) general economic or political conditions; (ii) conditions generally affecting
the industries in which the Company operates; (iii) any changes in financial, banking or securities markets in general, including
any disruption thereof and any decline in the price of any security or any market index or any change in prevailing interest rates;
(iv) acts of war (whether or not declared), armed hostilities or terrorism, or the escalation or worsening thereof; (v) any action
required or permitted by this Agreement or any action taken (or omitted to be taken) with the written consent of or at the written
request of Purchaser; (vi) any changes in applicable Laws or accounting rules (including U.S. GAAP) or the enforcement, implementation
or interpretation thereof; (vii) the announcement, pendency or completion of the transactions contemplated by this Agreement (provided,
that the exception in this subclause (vii) shall not apply to any representation or warranty contained in Sections 5.3, 5.4 or
5.10 or to the determination of whether any inaccuracy in such representations or warranties would reasonably be expected to have
a Material Adverse Effect for purposes of Sections 10.2(b)); (viii) any natural or man-made disaster or acts of God; or
(ix) any failure by the Company to meet any internal or published projections, forecasts or revenue or earnings predictions (provided
that the underlying causes of such failures (subject to the other provisions of this definition) shall not be excluded); except,
in the case of subclauses (i), (ii), (iv), (vi) and (viii), to the extent such change, event, circumstance or effect has a disproportionate
adverse effect on such entity as compared to other Persons engaged in the same industry.
1.47
“New Investment Escrow Account” means the Escrow Account (as defined in Section 1.03 of the Company Securityholder
Purchase Agreements and the Third Party Purchase Agreements).
1.48
“Order” means any decree, order, judgment, writ, award, injunction, rule or consent of or by an Authority.
1.49
“Ordinance” shall mean the Israeli Income Tax Ordinance (New Version), 1961, as amended, and all rules and
regulations promulgated thereunder, as may be amended from time to time.
1.50
“Ordinary Shares” means the Company’s ordinary shares, par value NIS 0.01 each.
1.51
“Ordinary A Shares” means the Company’s Ordinary A Shares, par value NIS 0.01 each.
1.52
“Ordinary Warrant” means a warrant to purchase Ordinary Shares.
1.53
“Permitted Liens” means (i) all defects, exceptions, restrictions, easements, rights of way and encumbrances
disclosed in policies of title insurance which have been made available to Purchaser; (ii) mechanics’, carriers’,
workers’, repairers’ and similar statutory Liens arising or incurred in the ordinary course of business for amounts
(A) that are not delinquent, (B) that are not material to the business, operations and financial condition of the Company so encumbered,
either individually or in the aggregate, and (C) not resulting from a breach, default or violation by the Company Group of any
Contract or Law; (iii) liens for Taxes not yet due and payable or which are being contested in good faith by appropriate proceedings
(and for which adequate accruals or reserves have been established on the Financial Statements), and (iv) the Liens set forth
on Schedule 1.53.
1.54
“Person” means an individual, corporation, partnership (including a general partnership, limited partnership
or limited liability partnership), limited liability company, association, trust or other entity or organization, including a
government, domestic or foreign, or political subdivision thereof, or an agency or instrumentality thereof.
1.55
“Preferred A Shares” means the Company’s Preferred A Shares par value NIS 0.01 each.
1.56
“Preferred A-1 Shares” means the Company’s Preferred A-1 Shares, par value NIS 0.01 each.
1.57
“Preferred A-1 Warrant” means a warrant to purchase Preferred A-1 Shares.
1.58
“Preferred A-2 Shares” means the Company’s Preferred A-2 Shares, par value NIS 0.01 each.
1.59”
Preferred A-3 Shares” means the Company’s Preferred A-3 Shares, par value NIS 0.01 each.
1.60
“Preferred A-4 Shares” means the Company’s Preferred A-4 Shares, par value NIS 0.01 each.
1.61
“Preferred B Shares” means the Company’s Preferred B Shares, par value NIS 0.01 each,
1.62
“Purchaser Common Stock” means the common stock of Purchaser.
1.63
“Purchaser Private Warrant” means each warrant issued in private placements at the time of consummation of
the IPO, entitling the holder thereof to purchase one share of Purchaser Common Stock at an exercise price of $11.50 per share.
1.64
“Purchaser Public Warrants” means one whole warrant that was included in as part of each Purchaser Unit, entitling
the holder thereof to purchase one share of Purchaser Common Stock at an exercise price of $11.50 per share.
1.65
“Purchaser Warrant” shall mean each Purchaser Private Warrant and Purchaser Public Warrant.
1.66
“Purchaser Unit” means a unit of the Purchaser comprised of (a) one share of Purchaser Common Stock and (b)
one-half of one warrant to purchase one share of Purchaser Common Stock at an exercise price of $11.50 per share.
1.67
“Real Property” means, collectively, all real properties and interests therein (including the right to use),
together with all buildings, fixtures, trade fixtures, plant and other improvements located thereon or attached thereto; all rights
arising out of use thereof (including air, water, oil and mineral rights); and all subleases, franchises, licenses, permits, easements
and rights-of-way which are appurtenant thereto.
1.68
“Registration Rights Agreement” means the agreement, in substantially the form attached hereto as Exhibit
F, governing the resale of (a) all shares of Purchaser Common Stock issuable pursuant to this Agreement, (b) any shares of
Purchaser Common Stock acquired by the Company Securityholder pursuant to the Company Securityholder Purchase Agreements or otherwise
in connection with the Merger and (c) all other securities of the Purchaser (including derivatives thereof, such as options and
warrants) held at any time by the Purchaser’s officers, directors, nominees, and direct and indirect parents, control persons,
affiliates and associates.
1.69
“Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002, as amended.
1.70
“SEC” means the Securities and Exchange Commission.
1.71
“Securities Act” means the Securities Act of 1933, as amended.
1.72
“Shareholder” means each Person who holds shares of Company Capital Stock immediately prior to the Effective
Time.
1.73
“Subsidiary” means each entity of which at least fifty percent (50%) of the capital stock or other equity or
voting securities are Controlled or owned, directly or indirectly, by the Company, which for the avoidance of doubt shall include
any variable interest entity through which all or a portion of the Business is conducted.
1.74
“Tangible Personal Property” means all tangible personal property and interests therein, including machinery,
computers and accessories, furniture, office equipment, communications equipment, automobiles, laboratory equipment and other
equipment owned or leased by the Company Group and other tangible property, including the items listed on Schedule 5.14(a).
1.75
“Tax(es)” means any federal, state, local or foreign tax, charge, fee, levy, custom, duty, deficiency, or other
assessment of any kind or nature imposed by any Taxing Authority (including any income (net or gross), gross receipts, profits,
windfall profit, sales, use, goods and services, ad valorem, franchise, license, withholding, employment, social security, workers
compensation, unemployment compensation, employment, payroll, transfer, excise, import, real property, personal property, intangible
property, occupancy, recording, minimum, alternative minimum, environmental), together with any interest, penalty, additions to
tax or additional amount imposed with respect thereto.
1.76
“Taxing Authority” means the Internal Revenue Service and any other Authority responsible for the collection,
assessment or imposition of any Tax or the administration of any Law relating to any Tax.
1.77
“Tax Return” means any return, information return, declaration, claim for refund or credit, report or any similar
statement, and any amendment thereto, including any attached schedule and supporting information, whether on a separate, consolidated,
combined, unitary or other basis, that is filed or required to be filed with any Taxing Authority in connection with the determination,
assessment, collection or payment of a Tax or the administration of any Law relating to any Tax.
1.78
“Third Party Purchase Agreements” means those certain Stock Purchase Agreements, substantially in the form
attached hereto as Exhibit G-1 and Exhibit G-2, to be entered into among Purchaser, the Company and third parties, pursuant to
which such third parties shall purchase shares of Purchaser Common Stock from Persons who hold shares of Purchaser Common Stock
as of the date of this Agreement.
1.79
“UCC” means the Uniform Commercial Code of the State of New York, or any corresponding or succeeding provisions
of Laws of the State of New York, or any corresponding or succeeding provisions of Laws, in each case as the same may have been
and hereafter may be adopted, supplemented, modified, amended, restated or replaced from time to time.
1.80
“U.S. GAAP” means U.S. generally accepted accounting principles, consistently applied.
1.81
“Valid Tax Certificate” means a valid certificate, ruling or any other written instructions regarding Tax withholding
(including with respect to the transfer at the Closing of the applicable Purchaser securities to a paying agent or a trustee),
issued by the ITA in customary form and substance reasonably satisfactory to Purchaser (which, for the avoidance of doubt, includes
Purchaser’s reasonable opportunity to review and comment on any application to the ITA submitted by a holder of convertible
securities or by a Company founder who is an individual holding shares, if applicable), that is applicable to the payments to
be made pursuant to this Agreement stating that no withholding of Israeli Tax is required with respect to such payment or providing
any other instructions regarding Tax withholding (including the Israeli Tax Ruling).
ARTICLE
II
MERGER
2.1 “Merger.
At the Effective Time (as defined in Section 2.2), and subject to and upon the terms and conditions of this Agreement, and in
accordance with Sections 314 through 327 of the Israeli Companies Law - 5759-1999 (the “Companies Law”), Merger
Sub shall be merged with and into the Company, the separate corporate existence of Merger Sub (as the target company, or Chevrat
Ha’Ya’ad) shall cease and the Company (as the absorbing company, or HaChevra Ha’Koletet) shall continue
as the Surviving Corporation. As a result of the Merger, the Company shall (a) become a wholly owned subsidiary of Purchaser,
(b) continue to be governed by the Laws of the State of Israel, (c) have a registered office in the State of Israel, and (d) succeed
to and assume all of the rights, properties and obligations of Merger Sub in accordance with the Companies Law, and the existing
shareholders of the Company shall be entitled to the consideration in accordance with the provisions of ARTICLE IV.
2.2 “Merger Effective
Date. The parties hereto shall, in coordination with each other, inform the Registrar of Companies of the State of Israel
(the “Registrar of Companies”) that all conditions to the Merger under the Companies Law and this Agreement
have been met (together with any other documentation required to be submitted to the Registrar of Companies, whether under this
Agreement or the Merger Proposal (the “Articles of Merger”), by the Registrar of Companies or otherwise) and
setting forth the proposed date for the date of effectiveness of the Merger on which the Registrar of Companies is requested to
issue a certificate evidencing the Merger in accordance with Section 323(5) of the Companies Law (the “Certificate of
Merger“). The Merger shall become effective upon the date set forth in the Certificate of Merger in accordance with
Section 323(5) of the Companies Law (the time at which the Merger becomes effective is referred to herein as the “Effective
Time”). For the avoidance of doubt, the parties intend that the Merger shall be declared effective and that the issuance
by the Registrar of Companies of the Certificate of Merger in accordance with Section 323(5) of the Companies Law shall both occur
on, or as soon as practically possible before, the Closing Date (as defined below).
2.3 “Effect of
the Merger. At the Effective Time, the effect of the Merger shall be as provided in this Agreement, the Articles of Merger
and the applicable provisions of the Companies Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all the property, rights, privileges, agreements, powers and franchises, debts, liabilities, duties and obligations
of the Company and Merger Sub shall become the property, rights, privileges, agreements, powers and franchises, debts, liabilities,
duties and obligations of the Surviving Corporation, which shall include the assumption by the Surviving Corporation of any and
all agreements, covenants, duties and obligations of the Company and the Merger Sub set forth in this Agreement to be performed
after the Closing. Merger Sub will be merged with and into the Company, and the separate corporate existence of Merger Sub will
cease, and the Surviving Corporation will become wholly owned directly by the Purchaser, all as provided under the Companies Law
and the provisions of this Agreement. For the avoidance of doubt, the Purchaser Warrants shall survive the Merger and remain in
effect without any change to their existing terms.
2.4 “U.S. Tax
Treatment. For U.S. federal income tax purposes, the Merger is intended to constitute a “reorganization” within
the meaning of Section 368 of the Code. The parties hereto adopt this Agreement as a “plan of reorganization” within
the meaning of Section 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.
2.5 “Articles
of Association. At the Effective Time, the articles of association of Merger Sub, as in effect immediately prior to the Effective
Time, shall cease to have effect and the articles of association of the Company (as amended, the “Charter Documents”),
as in effect immediately prior to the Effective Time, shall be the Charter Documents of the Surviving Corporation, except that
reference to the name of Merger Sub shall be replaced by reference to the name of the Surviving Corporation.
2.6 “Closing;
Effective Time. Unless this Agreement is earlier terminated in accordance with Article XIII, the closing of the Merger (the
“Closing”) shall take place at the offices of Loeb & Loeb LLP, 345 Park Avenue, New York, New York, at
10:00 a.m. local time, on the second (2nd) Business Day after the satisfaction or waiver (to the extent permitted by
applicable law) of the conditions set forth in Article X or at such other time, date and location as the Purchaser and Company
agree in writing. The parties may participate in the Closing via electronic means. The date on which the Closing actually occurs
is hereinafter referred to as the “Closing Date”.
2.7 “Board of
Directors of Purchaser. Immediately after the Closing, the Purchaser’s board of directors will consist of seven (7)
directors. Chardan Investments, LLC shall have the right to designate two (2) directors to serve for two (2) years from the Closing
and the Company shall designate five (5) directors (the “Shareholder Designees”).
2.8 “Taking of
Necessary Action; Further Action. If, at any time after the Closing, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and interest in, to and under,
and/or possession of, all assets, property, rights, privileges, powers and franchises of the Company and the Merger Sub, the officers
and directors of the Surviving Corporation are fully authorized in the name and on behalf of the Company and the Merger Sub, to
take all lawful action necessary or desirable to accomplish such purpose or acts, so long as such action is not inconsistent with
this Agreement.
2.9 “No Further
Ownership Rights in Company Capital Stock. At the Effective Time, the register of members of the Company shall be closed and
thereafter there shall be no further registration of transfers of Ordinary Shares of the Company or other securities of the Company
on the records of the Company. From and after the Effective Time, the holders of certificates evidencing ownership of Ordinary
Shares of the Company outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such
Ordinary Shares of the Company, except as otherwise provided for herein or by Law.
ARTICLE
III
[INTENTIONALLY OMITTED]
ARTICLE
IV
CONSIDERATION
4.1 Conversion of Company
Securities.
(a) Conversion of Company
Securities. At the Effective Time, by virtue of the Merger and without any action on the part of Purchaser, Merger Sub, the
Company or the Shareholders and subject to the receipt of a Valid Tax Certificate covering the entire consideration payable and
issuable under this Agreement, each share of Company Capital Stock issued and outstanding immediately prior to the Effective Time
shall be canceled and automatically converted into the right to receive, without interest a number of shares of Purchaser Common
Stock equal to the Closing Consideration Conversion Ratio as set forth on Schedule 1.14, in each case, subject to Section 4.1(j)
and Section 11.3.
(b) Treatment of Equity
Awards. Prior to the Effective Time, the board of directors of the Company and Purchaser, (or if appropriate, any duly authorized
committee thereof) shall, as applicable, take all corporate actions necessary, including adopting appropriate resolutions and
obtaining consents of option-holders if required, to provide that, as of the Effective Time and subject to the receipt of a Valid
Tax Certificate covering the entire consideration payable and issuable under this Agreement , each outstanding Equity Award, whether
vested or unvested, shall be assumed by Purchaser, and shall continue in full force and effect, containing the same terms, conditions,
vesting and other provisions, except that each Company Option under an Equity Award shall be exercisable for such number of Purchaser
Common Stock that equals the Closing Consideration Conversion Ratio as set forth on Schedule 1.14 and at such exercise price that
shall equal to the exercise price of such option immediately prior to the Closing divided by the Closing Consideration Conversion
Ratio as set forth on Schedule 1.14, further provided that with respect to any Equity Award, any fractional shares will be rounded
up to the nearest whole number of shares of Purchaser Common Stock. Purchaser undertakes to assume the Equity Incentive Plan as
amended pursuant to Section 9.11, in accordance with the requirements of the capital gains route under Section 102 to the Israeli
Tax Ordinance, as needed in order to allow for the assumption of the outstanding Equity Awards as provided for above.
(c) Treatment of Ordinary
Warrants and Preferred A-1 Warrants. Prior to the Effective Time, the Company and the Purchaser (or if appropriate, any duly
authorized committee thereof) shall, as applicable, take all corporate actions necessary, including adopting appropriate resolutions
and obtaining consents of warrant-holders if required, to provide that, as of the Effective Time and subject to the receipt of
a Valid Tax Certificate covering the entire consideration payable and issuable under this Agreement , each outstanding Ordinary
Warrant and Preferred A-1 Warrant (collectively, “Company Warrants”) shall be assumed by Purchaser, and shall
continue in full force and effect, containing the same terms, conditions, vesting and other provisions, except that with respect
to each share of the Company (whether Ordinary Share or Preferred A-1 Share) that is subject to a Company Warrant prior to the
Closing, shall be exercisable for such number of shares of Purchaser Common Stock that equals the Closing Consideration Conversion
Ratio as set forth on Schedule 1.14, in each case, subject to Section 4.1(j) and Section 11.3, and at such exercise price that
shall equal to the exercise price of such warrant share immediately prior to the Closing divided by the Closing Consideration
Conversion Ratio as set forth on Schedule 1.14, further provided that with respect to any Company Warrant, any fractional share
will be rounded up to the nearest whole number of shares of Purchaser Common Stock.
(d) Treatment of 102
Company Securities. Notwithstanding anything to the contrary in this Agreement, any consideration payable for 102 Company
Securities shall be deposited with the 102 Trustee to be held and released in accordance with the provisions of Section 102 of
the Ordinance, the Israeli Tax Ruling or any other approval that may be issued by the ITA.
(e) Conversion of Shares
of Merger Sub. Each share of Merger Sub that is issued and outstanding immediately prior to the Effective Time will, by virtue
of the Merger and without further action on the part of the sole shareholder of Merger Sub, be converted into and become one share
of the Surviving Corporation (and the shares of Surviving Corporation into which the shares of Merger Sub are so converted shall
be the only shares of the Surviving Corporation that are issued and outstanding immediately after the Effective Time). Each certificate
evidencing ownership of shares of Merger Sub will, as of the Effective Time, be deemed to evidence ownership of such shares of
the Surviving Corporation.
(f) Treatment of Ordinary
Shares Owned by the Company. At the Effective Time, all Ordinary Shares of the Company that are owned by the Company as treasury
shares immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof.
(g) No Liability.
Notwithstanding anything to the contrary in this Section 4.1, no party hereto shall be liable to any person for any amount properly
paid to a public official pursuant to any applicable abandoned property, escheat or similar law.
(h) Surrender of Certificates.
All Closing Payment Shares issued upon the surrender of Ordinary Shares in accordance with the terms hereof, shall be deemed to
have been issued in full satisfaction of all rights pertaining to such securities, other than the additional obligations of Purchaser
and the rights of the Shareholders pursuant to Section 11.3.
(i) Lost or Destroyed
Certificates. In the event any certificates representing shares of Company Capital Stock shall have been lost, stolen or destroyed,
the Purchaser shall issue in exchange for such lost, stolen or destroyed certificates or securities, as the case may be, upon
the making of an affidavit of that fact by the holder thereof (without the requirement to post a bond), such securities, as may
be required pursuant to this Section 4.1 and Section 11.3.
(j) Escrow Shares.
Notwithstanding anything to the contrary in the other provisions of this Section 4.1, Purchaser shall withhold from the shares
of Purchaser Common Stock otherwise issuable to an Escrow Participant pursuant to Section 4.1(a) and from the number of shares
of Purchaser Common Stock issuable upon conversion of each Ordinary Warrant and Preferred A-1 Warrant held by an Escrow Participant
and assumed by Purchaser as of the Effective Time in accordance with Section 4.1(c) and that are vested as of immediately prior
to the Effective Time, a number of shares of Purchaser Common Stock equal to: (i) the Escrow Shares; multiplied by (b) such Escrow
Participant’s Escrow Pro Rata Portion, in each case, as set forth on Schedule 1.14.
(k) Schedule 1.14.
No later than two (2) days prior to the Closing Date, the Company shall deliver to Purchaser a final Schedule 1.14, which shall
set forth, as of the immediately prior to the Effective Time, the following information: (i) the name of each Company Securityholder,
(ii) the number and kind of each Company Security held by each Company Securityholder, including, if applicable, the number of
Ordinary Shares and Ordinary A Shares issuable upon exercise or conversion of such Company Security and the exercise price per
share for such Company Security, (iii) the vesting arrangements with respect to each Company Security held by such Company Securityholder
(including the vesting schedule, vesting commencement date, date fully vested and the extent to which such Company Security is
vested as of the Closing), (iv) the total number of shares of Purchaser Common Stock issuable pursuant to Section 4.1(a) in respect
of each Company Security held by such Company Securityholder; (v) the total number of shares of Purchaser Common Stock issuable
upon exercise or conversion of each Company Security held by such Company Securityholder following the assumption by Purchaser
of such Company Security pursuant to Section 4.1(b) and Section 4.1(c) and the respective exercise price per share applicable
to such Company Security following such assumption; (vi) the number of Escrow Shares deposited into the Escrow Account on behalf
of such Company Securityholder pursuant to Section 4.1(j); and (vii) such Company Securityholder’s Escrow Pro Rata Portion.
4.2 Closing Payment
Shares.
(a) No certificates or
scrip representing fractional shares of Purchaser Common Stock will be issued pursuant to the Merger, including with respect to
any release of the Escrow Shares pursuant to Section 4.1(j) and the Escrow Agreement and such fractional share interests will
not entitle the owner thereof to vote or to any rights of a shareholder of the Purchaser.
(b) Legend. Each
certificate representing shares of Purchaser Common Stock issued pursuant to this Agreement shall bear the legend set forth below,
or legend substantially equivalent thereto, together with any other legends that may be required by any securities Laws at the
time of the issuance of the Purchaser Common Stock:
THE SHARES OF COMMON STOCK REPRESENTED
BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”)
OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL (I) SUCH OFFER, SALE, TRANSFER, PLEDGE OR HYPOTHECATION HAS BEEN REGISTERED UNDER THE ACT AND THE SECURITIES
LAWS OF ANY STATE OR OTHER JURISDICTION COVERING SUCH SECURITIES OR (II) THE ISSUER OF THE SHARES OF COMMON STOCK HAS RECEIVED
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION
IS IN COMPLIANCE WITH THE ACT AND SUCH OTHER APPLICABLE LAWS.
4.3 Reserved.
4.4 Withholding Rights
and Tax Rulings.
(a) The Company, Purchaser
or any Person acting on their behalf (each, a “Payor”), shall be entitled to deduct and withhold from any consideration
payable or otherwise deliverable pursuant to this Agreement such amounts as are required to be deducted and withheld therefrom
under any applicable provision of federal, local or foreign Tax law or under any applicable legal requirements (including, for
the avoidance of doubt, the regulation of withholding from assets and services). To the extent such amounts are so deducted and
withheld and remitted to the applicable Tax authority, such amounts shall be treated for all purposes under this Agreement as
having been paid to the Person to whom such amounts would otherwise have been paid (each, a “Payee”), and the
Payor shall promptly provide the applicable Payee with a document evidencing the amount so withheld and remitted to the Tax authority
with respect to the payment made to such Payee. If any Person presents to Purchaser or anyone on its behalf a Valid Tax Certificate
covering the entire consideration payable and issuable under this Agreement to such Person and exempting Purchaser from any Israeli
withholding obligation, then the deduction and withholding of any Israeli Taxes (if any) shall be made only in accordance with
the provisions of such Valid Tax Certificate (subject to withholding on account of non-Israeli Taxes, if applicable). Notwithstanding
anything to the contrary in this Agreement, until a Person presents to Purchaser or anyone on its behalf a Valid Tax Certificate
no consideration under this Agreement shall be issued by the Purchaser by such Person.
(b) As soon as practicable
after the date of this Agreement, the Company shall instruct its Israeli counsel, advisors and/or accountants to prepare and file
with the ITA, in full coordination with Purchaser’s advisors, an application for a ruling (which shall be confirmed by Purchaser’s
advisors prior to its submission and such confirmation shall not be unreasonably withheld, conditioned or delayed) confirming,
among other things, that (1) in relation to the consideration to be paid to the holders of 102 Company Securities, that the payment
of consideration in respect of 102 Company Securities with respect to which the minimum trust period required by Section 102 of
the Ordinance has not passed, will not constitute a violation of the requirements of Section 102 of the Ordinance as long as such
consideration is deposited with the 102 Trustee, and that payments of consideration made to the 102 Trustee under this Agreement
shall not be subject to withholding of Israeli Tax, and (2) that the assumption of the Company Options will not trigger a taxable
event and that tax continuity will apply to such assumed options such that they shall continue to be subject to the same tax arrangement
as applied to the Company Options (the “Israeli Tax Ruling”).
(c) Each of Purchaser and
Company shall cause their respective Israeli counsel, advisors and accountants to coordinate all activities, and to cooperate
with each other, with respect to the preparation and filing of any written or oral submissions or applications that may be necessary,
proper or advisable to obtain the Israeli Tax Ruling. The final text of the Israeli Tax Ruling shall in all circumstances be subject
to the prior written confirmation of Purchaser or its counsel which confirmation shall not be unreasonably withheld, conditioned
or delayed. Each of Purchaser and Company shall use reasonable best efforts to promptly take, or cause to be taken, all action
and to do, or cause to be done, all things necessary, proper or advisable under applicable law to obtain the Israeli Tax Ruling,
as promptly as practicable.
ARTICLE
V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in
the disclosure schedules delivered by the Company to the Purchaser prior to the execution of this Agreement, the Company hereby
represents and warrants to Purchaser that each of the following representations and warranties are true, correct and complete
as of the date of this Agreement and as of the Closing Date.
5.1 Corporate Existence
and Power. The Company is a company duly incorporated, validly existing under the Laws of the State of Israel. The Company
has all power and authority, corporate and otherwise, and all governmental licenses, franchises, Permits, authorizations, consents
and approvals required to own and operate its properties and assets and to carry on the Business as presently conducted and as
proposed to be conducted. The Company is not a “defaulting company” as defined under the Companies Law. The Company
has the corporate power and authority to own or lease all of its properties and assets and to carry on its Business as it is now
being conducted, and is duly licensed or qualified to do business in each jurisdiction in which the its properties and owned or
leased by it or the operation of its Business as currently conducted makes such licensing or qualification necessary, except where
the failure to be so licensed or qualified would not have a Material Adverse Effect. The Company has offices located only at the
addresses set forth on Schedule 5.1.
5.2 Authorization.
The execution, delivery and performance by the Company of this Agreement and the Additional Agreements and the consummation by
the Company of the transactions contemplated hereby and thereby are within the corporate powers of the Company and have been duly
authorized by all necessary action on the part of the Company. This Agreement constitutes, and, upon their execution and delivery,
each of the Additional Agreements will constitute, a valid and legally binding agreement of the Company enforceable against the
Company in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity. The Company Board
of Directors, by resolutions duly adopted (and not thereafter modified or rescinded) by the unanimous vote of the Company Board
of Directors, has (i) approved this Agreement and the other Transactions and determined that this Agreement and the Transactions,
upon the terms and subject to the conditions set forth herein, advisable, fair to and in the best interests of the Company and
the Company Shareholders, (ii) approved this Agreement in accordance with the provisions of Israeli Law and the Charter Documents
and (iii) directed that the adoption of this Agreement be submitted to the Company Shareholders for consideration and unanimously
recommended that all of the Company Shareholders adopt this Agreement. The affirmative vote of more than fifty percent (50%) (on
an as-converted basis) of the voting power of the Shareholders who are present in person or by proxy at such meeting and voting
thereon shall be required by the Company to approve the transactions contemplated by this Agreement by the Shareholders (the “Company
Shareholder Approval”).
5.3 Governmental Authorization.
Except for the approvals listed on Schedule 5.3, neither the execution, delivery nor performance by the Company of this Agreement
or any Additional Agreements requires any consent, approval, license, order or other action by or in respect of, or registration,
declaration or filing with, any Authority as a result of the execution, delivery and performance of this Agreement or any of the
Additional Agreements or the consummation of the transactions contemplated hereby or thereby (each of the foregoing, a “Governmental
Approval”).
5.4 Non-Contravention.
None of the execution, delivery or performance by the Company of this Agreement or any Additional Agreements does or will (a)
contravene or conflict with the organizational or constitutive documents of any member of the Company Group, (b) contravene or
conflict with or constitute a violation of any provision of any Law or Order binding upon or applicable to the Company Group,
(c) except for the Contracts listed on Schedule 5.16(a) requiring Company Consents (but only as to the need to obtain such Company
Consents), constitute a default under or breach of (with or without the giving of notice or the passage of time or both) or violate
or give rise to any right of termination, cancellation, amendment or acceleration of any right or obligation of the Company Group
or require any payment or reimbursement or to a loss of any material benefit relating to the Business to which the Company Group
are entitled under any provision of any Permit, Contract or other instrument or obligations binding upon the Company Group or
by which any of the Company Capital Stock or any of the Company Group’s assets is or may be bound or any Permit, (d) result
in the creation or imposition of any Lien on any of the Company Capital Stock, (e) cause a loss of any material benefit relating
to the Business to which the Company Group are entitled under any provision of any Permit or Contract binding upon the Company
Group, (f) result in the creation or imposition of any Lien (except for Permitted Liens) on any of the Company Group’s assets,
or (g) require any consent, approval or waiver from any Person pursuant to any provision of the Charter Documents, except for
such consent, approval or waiver which shall be obtained prior to the Closing.
5.5 Capitalization.
The Company’s authorized share capital is NIS 236,780, divided into:
(a) 13,044,778 ordinary
shares, par value NIS 0.01 each, of which 954,622 are issued and outstanding;
(b) 2,836,880 Preferred
B Shares, par value NIS 0.01 each, of which 2,266,314 are issued and outstanding;
(c) 1,556,185 Preferred
A Shares par value NIS 0.01 each, of which 234,147 are issued and outstanding;
(d) 2,554,403 Preferred
A-1 Shares, par value NIS 0.01 each, of which 2,500,511 are issued and outstanding;
(e) 130,434 Preferred A-2
Shares, par value NIS 0.01 each, of which 130,434 are issued;
(f) 1,000,000 Ordinary
A Shares, par value NIS 0.01 each, none of which are issued and outstanding;
(g) 2,300,000 Preferred
A-3 Shares, par value NIS 0.01 each, none of which are issued and outstanding; and
(h) and 255,320 Preferred
A-4 Shares, par value NIS 0.01 each, of which 255,320 are issued and outstanding.
(the shares listed in (a)
– (h) above shall be referred to collectively as the “Company Capital Stock”).
(i) No Company Capital
Stock is held in its treasury. All of the issued and outstanding Company Capital Stock has been duly authorized and validly issued,
is fully paid and non-assessable and has not been issued in violation of any preemptive or similar rights of any Person. All of
the issued and outstanding Company Capital Stock is owned of record and, to the Company’s knowledge, beneficially by the
Shareholders as set forth on Schedule 5.5, free and clear of all Liens. No outstanding Company Capital Stock is subject to any
right of first refusal, right of first offer, preemptive right or similar restriction. The only shares of Company Capital Stock
that will be outstanding Closing will be the Company Capital Stock owned by the Purchaser following the consummation of the Merger.
No other class of shares of the Company is authorized or outstanding. Except as set forth in Schedule 5.5, there are no: (a) outstanding
subscriptions, options, warrants, rights (including “phantom share rights”), calls, commitments, understandings, conversion
rights, rights of exchange, plans or other agreements of any kind providing for the purchase, issuance or sale of any shares of
the Company, or (b) agreements with respect to any of the Company Capital Stock, including any voting trust, other voting agreement
or proxy with respect thereto.
(j) The terms of the Equity
Incentive Plan permit the treatment of Company Options as provided in this Agreement without the consent or approval of, the holders
of such securities or otherwise and without any acceleration of the exercise schedule or vesting provisions in effect for such
Company Options. No outstanding Company Options, whether under the Equity Incentive Plan or otherwise, will be accelerated in
connection with the Agreement.
(k) All Company Options
granted by the Company to its officers and employees in Israel that are currently outstanding were granted under an equity incentive
plan approved, or not rejected within thirty (30) days from filing, by the ITA under the capital gains route of Section 102 of
the Ordinance.
(l) The terms of the Company
Warrants permit the treatment of Company Warrants as provided herein the consent or approval of, the holders of Company Warrant,
the Company Shareholders.
(m) No employee of the
Company or other Person has received an offer letter or other Contract which is still outstanding that contemplates a grant of,
or right to purchase or receive: (i) Equity Awards or (ii) any other securities of the Company, that in each case, have not been
issued or granted as of the date of this Agreement.
5.6 Charter Documents.
Copies of the Charter Documents have heretofore been made available to Purchaser, and such copies are each true and complete copies
of such instruments as amended and in effect on the date hereof. The Company has not taken any action in violation or derogation
of its Charter Documents.
5.7 Corporate Records.
All proceedings occurring since January 1, 2016 of the board of directors of the Company, including all committees thereof, and
of the Company Shareholders, and all consents to actions taken thereby, are accurately reflected in the minutes and records contained
in the corporate minute books of the Company and made available to the Purchaser. The register of members of the Company is complete
and accurate.
5.8 Assumed Names.
Schedule 5.8 is a complete and correct list of all assumed or “doing business as” names currently or, within five
(5) years of the date of this Agreement used by the Company Group, including names on any websites. Since January 1, 2016 none
of the members of the Company Group has used any name other than the names listed on Schedule 5.8 to conduct the Business. The
Company Group has filed appropriate “doing business as” certificates in all applicable jurisdictions with respect
to itself.
5.9 Subsidiaries.
RondinX Ltd. (“RondinX”, or the “Subsidiary”), a company duly organized and validly existing under
the Laws of the State of Israel, is a wholly-owned subsidiary of the Company. The Company is not a participant in any joint venture,
partnership, or similar arrangement. The share capital of RondinX is fully paid-up. Except for RondinX, the Company does not own
or Control, directly or indirectly, any ownership, equity, profits or voting interest in any Person or has any agreement or commitment
to purchase any such interest, and has not agreed and is not obligated to make, nor is bound by any Contract under which it may
become obligated to make, any future investment (in the form of a loan, capital contribution or otherwise) in any other Person.
(a) RondinX has all power
and authority, corporate and otherwise, and all governmental licenses, Permits, authorizations, consents and approvals required
to own and operate its properties and assets and to carry on the Business as presently conducted and as proposed to be conducted.
RondinX is not a “defaulting company” as defined under the Companies Law. RondinX is not qualified to do business
as a foreign entity in any jurisdiction, and there is no other jurisdiction in which the character of the property owned or leased
by RondinX or the nature of its activities make qualification of RondinX in any such jurisdiction necessary. RondinX has offices
located only at the addresses set forth by its name on Schedule 5.9.
(b) No outstanding capital
stock or other securities of RondinX are subject to any right of first refusal, right of first offer, preemptive right or similar
restriction. Except as set forth on Schedule 5.9(b), there are no: (i) outstanding subscriptions, options, warrants, rights (including
“phantom stock rights”), calls, commitments, understandings, conversion rights, rights of exchange, plans or other
agreements of any kind providing for the purchase, issuance or sale of any shares of the capital stock or other securities of
RondinX, or (ii) agreements with respect to any of the capital stock or other securities of RondinX, including any voting trust,
other voting agreement or proxy with respect thereto.
5.10 Consents.
The Contracts listed on Schedule 5.10 are the only Contracts binding upon the Company Group or by which any of the Company Capital
Stock or any of the Company Group’s assets are bound, requiring a consent, approval, authorization, order or other action
of or filing with any Person as a result of the execution, delivery and performance of this Agreement or any of the Additional
Agreements or the consummation of the transactions contemplated hereby or thereby (each of the foregoing, a “Company
Consent”).
5.11 Financial Statements.
(a) Schedule 5.11 includes
the audited consolidated financial statements of the Company as of and for the fiscal years ended December 31, 2018, 2017 and
2016 consisting of the audited consolidated balance sheet as of such date, the audited consolidated income statement for the twelve
(12) month period ended on such date, and the audited consolidated cash flow statement for the twelve (12) month period ended
on such date, (collectively, the “Financial Statements” and the audited consolidated balance sheet as of December
31, 2018 (the “Balance Sheet Date”) included therein, the “Balance Sheet”).
(b) The Financial Statements
fairly present, in conformity with U.S. GAAP applied on a consistent basis, the financial position of the Company Group as of
the dates thereof and the results of operations of the Company Group for the periods reflected therein. The Financial Statements
(i) were prepared from the Books and Records of the Company Group; and (ii) were prepared on an accrual basis in accordance with
U.S. GAAP consistently applied.
(c) Except as: (i) specifically
disclosed, reflected or fully reserved against on the Balance Sheet; (ii) liabilities and obligations incurred in the ordinary
course of business since the date of the Balance Sheet; (iii) liabilities that are executory obligations arising under Contracts
to which any member of the Company Group is a party (none of which results from, arises out of, or relates to any breach or violation
of, or default under, a Material Contract or applicable Law); (iv) expenses incurred in connection with the negotiation, execution
and performance of this Agreement, any Additional Agreement or any of the transactions contemplated hereby or thereby; (v) liabilities
that would not have a Material Adverse Effect; and (vi) liabilities set forth on Schedule 5.11(c), the Company Group does not
have any material liabilities, debts or obligations of any nature (whether accrued, fixed or contingent, liquidated or unliquidated,
asserted or unasserted or otherwise)of the type required to be reflected on a balance sheet in accordance with GAAP.
(d) Except as set forth
on Schedule 5.11(d), the Company Group does not have any Indebtedness.
5.12 Books and Records.
All Contracts, documents, and other papers or copies thereof delivered to Purchaser by or on behalf of the Company Group are accurate,
complete, and authentic.
(a) The Books and Records
accurately and fairly, in reasonable detail, reflect the transactions and dispositions of assets of and the providing of services
by the Company Group. The Company maintains procedures of internal controls sufficient to provide reasonable assurance that:
(i) transactions
are executed only in accordance with the respective management’s authorization;
(ii) all income
and expense items are promptly and properly recorded for the relevant periods in accordance with the revenue recognition and expense
policies maintained by the Company, as permitted by U.S. GAAP; and
(iii) access to
assets is permitted only in accordance with the respective management’s authorization.
(b) All accounts, books
and ledgers of the Company Group have been properly and accurately kept and completed in all material respects, and there are
no material inaccuracies or discrepancies of any kind contained or reflected therein. Except as disclosed on Schedule 5.12(b),
the Company Group does not have any records, systems controls, data or information recorded, stored, maintained, operated or otherwise
wholly or partly dependent on or held by any means (including any mechanical, electronic or photographic process, whether computerized
or not) which (including all means of access thereto and therefrom) are not under the exclusive ownership (excluding licensed
software programs) and direct control of the Company Group and which is not located at the relevant office.
5.13 Absence of Certain
Changes. Since the Balance Sheet Date, the Company Group has conducted the Business in the ordinary course consistent with
past practices. Without limiting the generality of the foregoing, except as set forth on Schedule 5.13, since the Balance
Sheet Date, there has not been:
(a) any Material Adverse
Effect or any material diminishment in the value to Purchaser of the transactions contemplated hereby;
(b) any transaction, Contract
or other instrument entered into, or commitment made, by the Company Group, or any of the Company Group’s assets (including
the acquisition or disposition of any assets) or any relinquishment by the Company Group of any Contract or other right, in either
case other than transactions and commitments in the ordinary course of business consistent in all respects, including kind and
amount, with past practices and those contemplated by this Agreement;
(c) (i) any redemption
of, declaration, setting aside or payment of any dividend or other distribution with respect to any capital stock or other equity
interests in the Company Group; (ii) any issuance by the Company Group of shares of capital stock or other equity interests in
the Company Group, or (iii) any repurchase, redemption or other acquisition, or any amendment of any term, by the Company Group
of any outstanding shares of capital stock or other equity interests;
(d) any material change
in any compensation or benefits arrangement or agreement with any employee, officer, director or shareholder of the Company or
the Subsidiary, except for changes or amendments that are expressly provided for in this Agreement;
(e) (i) any creation or
other incurrence of any Lien (other than Permitted Liens) on the Company Capital Stock or any other capital stock or securities
of the Company Group or on any of the Company Group’s assets, and (ii) any making of any loan, advance or capital contributions
to or investment in any Person by the Company Group;
(f) any material personal
property damage, destruction or casualty loss or personal injury loss (whether or not covered by insurance) affecting the business
or assets of the Company Group;
(g) any material labor
dispute, other than routine individual grievances, or any activity or proceeding by a labor union or representative thereof to
organize any employees of the Company Group, which employees were not subject to a collective bargaining agreement at the Balance
Sheet Date, or any lockouts, strikes, slowdowns, work stoppages or threats thereof by or with respect to any employees of the
Company Group;
(h) any sale, transfer,
lease to others or otherwise disposition of any of its assets by the Company Group except for inventory sold in the ordinary course
of business consistent with past practices or immaterial amounts of other Tangible Personal Property not required by its business;
(i) any capital expenditure
by the Company Group in excess in any fiscal month of an aggregate of $400,000 or entering into any lease of capital equipment
or property under which the annual lease charges exceed $400,000 in the aggregate by the Company Group;
(j) any institution of
litigation, settlement or agreement to settle any litigation, action, proceeding or investigation before any court or governmental
body relating to the Company Group or its property or suffering of any actual or threatened litigation, action, proceeding or
investigation before any court or governmental body relating to the Company Group or its property;
(k) any waiver by the Company
or the Subsidiary of a material right or of a material debt owed to it;
(l) the incurrence of any
Indebtedness, or any loan of any monies to any Person or guarantee of any obligations of any Person by the Company Group;
(m) except as required
by U.S. GAAP, any change in the accounting methods or practices (including, any change in depreciation or amortization policies
or rates) of the Company Group or any revaluation of any of the assets of the Company Group;
(n) any amendment to the
Company Group’s organizational documents, or any engagement by the Company Group in any merger, consolidation, reorganization,
reclassification, liquidation, dissolution or similar transaction;
(o) any acquisition of
assets (other than acquisitions of inventory in the ordinary course of business consistent with past practice) or business of
any Person;
(p) any material Tax election
made by the Company Group outside of the ordinary course of business consistent with past practice, or any material Tax election
changed or revoked by the Company Group; any material claim, notice, audit report or assessment in respect of Taxes settled or
compromised by the Company Group; any annual Tax accounting period changed by the Company Group; any Tax allocation agreement,
Tax sharing agreement, Tax indemnity agreement or closing agreement relating to any Tax entered into by the Company Group; or
any right to claim a material Tax refund surrendered by the Company Group; or
(q) any commitment or agreement
to do any of the foregoing.
5.14 Properties; Title
to the Company’s Assets.
(a) Except as set forth
on Schedule 5.14(a), the items of Tangible Personal Property have no defects, are in good operating condition and repair and function
in accordance with their intended uses (ordinary wear and tear excepted) and have been properly maintained, and are suitable for
their present uses and meet all specifications and warranty requirements with respect thereto.
(b) All of the Tangible
Personal Property is located at the office of the Company.
(c) The Company has good,
valid and marketable title in and to, or in the case of the Leases and the assets which are leased or licensed pursuant to Contracts,
a valid leasehold interest or license in or a right to use, all of their assets reflected on the Balance Sheet. Except as set
forth on Schedule 5.14(c), no such asset is subject to any Liens other than Permitted Liens. The Company Group’s assets
constitute all of the assets of any kind or description whatsoever, including goodwill, for the Company Group to operate the Business
immediately after the Closing in the same manner as the Business is currently being conducted.
5.15 Litigation.
Except as set forth on Schedule 5.15, there is no Action (or any basis therefore) pending against, or to the best knowledge of
the Company threatened against or affecting, the Company Group, any of its officers or directors, the Business, or any Company
Capital Stock or any of the Company’s Group assets or any Contract before any court, Authority or official or which in any
manner challenges or seeks to prevent, enjoin, alter or delay the transactions contemplated hereby or by the Additional Agreements.
There are no outstanding judgments against the Company Group. The Company Group is not, and has not been in the past five (5)
years, subject to any proceeding with any Authority.
5.16 Contracts.
(a) Schedule 5.16(a) lists
all Contracts, oral or written (collectively, “Material Contracts”) to which, as of the date of this Agreement,
the Company Group is a party and which are currently in effect and constitute the following:
(i) all Contracts
that require annual payments or expenses incurred by, or annual payments or income to, the Company Group of $400,000 or more (other
than standard purchase and sale orders entered into in the ordinary course of business consistent with past practice);
(ii) all sales,
advertising, agency, lobbying, broker, sales promotion, market research, marketing or similar contracts and agreements, in each
case requiring the payment of any commissions by the Company Group in excess of $400,000 annually;
(iii) all employment
Contracts, employee leasing Contracts, and consultant and sales representatives Contracts with any current officer, director,
employee or consultant of the Company Group, under which the Company Group (A) has continuing obligations for payment of annual
compensation of at least $400,000 (other than arrangements for at-will employment), (B) has severance or post termination obligations
to such Person (other than COBRA obligations or statutory severance under applicable Israeli law), or (C) has an obligation to
make a payment upon consummation of the transactions contemplated hereby or as a result of a change of control of the Company;
(iv) all Contracts
creating a joint venture, strategic alliance, limited liability company and partnership agreements to which the Company Group
is a party;
(v) all Contracts
relating to any acquisitions or dispositions of material assets by the Company Group (other than acquisitions or dispositions
of inventory in the ordinary course of business consistent with past practice);
(vi) all Contracts
for material licensing agreements, including material Contracts licensing Intellectual Property Rights, other than (a) “shrink
wrap” or other licenses for generally commercially available software (including open source software) or hosted services,
(b) customer or channel partner Contracts substantially on Company’s standard forms, (c) Contracts with Company’s
own employees or contractors substantially on Company’s standard forms, and (d) standard non-disclosure agreements (collectively,
and excluding all material transfer and other sample agreements services agreements and scientific advisory board agreements,
“Standard Contracts”);
(vii) all Contracts
limiting the freedom of the Company Group to compete in any line of business or with any Person or in any geographic area;
(viii) all Contracts
relating to patents, trademarks, service marks, trade names, brands, copyrights, trade secrets and other Intellectual Property
Rights of the Company Group other than Standard Contracts, material transfer and other sample agreements services agreements and
scientific advisory board agreements;
(ix) all Contracts
providing for guarantees, indemnification arrangements and other hold harmless arrangements made or provided by the Company Group,
including all ongoing agreements for repair, warranty, maintenance, service, indemnification or similar obligations other than
Standard Contracts;
(x) all Contracts
with or pertaining to the Company Group to which any Affiliate of the Company Group is a party, other than any Contracts relating
to such Affiliate’s status as a Company Securityholder;
(xi) all Contracts
relating to property or assets (whether real or personal, tangible or intangible) in which the Company Group holds a leasehold
interest (including the Leases) and which involve payments to the lessor thereunder in excess of $400,000 per year;
(xii) all Contracts
relating to outstanding Indebtedness;
(xiii) any Contract
relating to the voting or control of the equity interests of the Company Group or the election of directors of the Company Group
(other than the organizational documents of the Company Group);
(xiv) any Contract
not cancellable by the Company Group with no more than 60 days’ notice if the effect of such cancellation would result in
monetary penalty to the Company Group in excess of $400,000 per the terms of such contract;
(xv) any Contract
that can be terminated, or the provisions of which are altered, as a result of the consummation of the transactions contemplated
by this Agreement or any of the Additional Agreements to which the Company Group is a party;
(xvi) any Contract
containing covenants restricting the Company from competing with any Person in any line of business, industry or geographical
area; and
(xvii) any Contract
for which any of the benefits, compensation or payments (or the vesting thereof) will be increased or accelerated by the consummation
of the transactions contemplated hereby or the amount or value thereof will be calculated on the basis of any of the transactions
contemplated by this Agreement.
(b) Except as set for the
on Schedule 5.16(b), each Material Contract is a valid and binding agreement, and is in full force and effect (subject to (i)
Laws of general application relating to bankruptcy, insolvency and the relief of debtors; and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies), and neither the Company Group nor, to the Company’s best knowledge,
any other party thereto, is in material breach or default (whether with or without the passage of time or the giving of notice
or both) under the terms of any such Material Contract. Except as set for the on Schedule 5.16(b), the Company Group has not assigned,
delegated, or otherwise transferred any of its rights or obligations with respect to any Material Contracts, or granted any power
of attorney with respect thereto.
(c) Except as set forth
on Schedule 5.16(c), none of the execution, delivery or performance by the Company of this Agreement or Additional Agreements
to which the Company is a party or the consummation by the Company of the transactions contemplated hereby or thereby constitutes
a default under or gives rise to any right of termination, cancellation or acceleration of any obligation of the Company Group
or to a loss of any material benefit to which the Company Group is entitled under any provision of any Material Contract.
(d) Except as set for the
on Schedule 5.16(d), the Company Group is in compliance with all covenants, including all financial covenants, in all notes, indentures,
bonds and other instruments or agreements evidencing any Indebtedness.
5.17 Licenses and Permits.
Schedule 5.17 correctly lists each license, franchise, permit, order or approval or other similar authorization required under
applicable law to carry out or otherwise affecting, or relating in any way to, the Business, together with the name of the Authority
issuing the same (the “Permits”). Except as indicated on Schedule 5.17, such Permits are valid and in full
force and effect, and none of the Permits will, assuming the related Company Consent has been obtained or waived prior to the
Closing Date, be terminated or impaired or become terminable as a result of the transactions contemplated hereby. The Company
Group has all Permits necessary to operate the Business.
5.18 Compliance with
Laws. Except as set forth on Schedule 5.18, the Company Group is not in material violation of, has not since January 1, 2017,
violated in any material respect, and to the Company’s best knowledge, has not since January 1, 2017 been threatened in
writing to be charged with or given written notice of any violation of, any Law, or judgment, order or decree entered by any Authority,
domestic or foreign.
(a) Without limiting the
foregoing paragraph, the Company Group is not in violation of, has not violated, and to the Company’s best knowledge is
not under investigation with respect to nor has been threatened or charged with or given notice of any violation of any provisions
of:
(i) any Law applicable
due to the specific nature of the Business, including Laws applicable to data privacy, data security and/or personal information
(“Data Protection Laws”) and Laws applicable to lending activities;
(ii) the Foreign
Corrupt Practices Act of 1977 (§§ 78dd-1 et seq.), as amended (the “Foreign Corrupt Practices Act”)
or any comparable or similar Law of any jurisdiction applicable to the Company; or
(iii) any Law
regulating or covering conduct in, or the nature of, the workplace, including regarding sexual harassment or, on any impermissible
basis, a hostile work environment.
(b) Without limiting the
foregoing paragraph, neither the Company Group nor, to the knowledge of the Company, any director, officer, agent, employee, Affiliate
or Person acting on behalf of the Company is currently subject to any U.S. sanctions administered by the Office of Foreign Assets
Control of the U.S. Treasury Department (“OFAC”).
(c) Except as set forth
on Schedule 5.18, no permit, license or registration is required by the Company Group in the conduct of the Business under any
of the Laws described in this Section 5.18.
5.19 Intellectual Property.
(a) Schedule 5.19 sets
forth a true, correct and complete list of all registered Intellectual Property Rights and applications for registration of Intellectual
Property Rights owned or filed by any member of the Company Group, specifying as to each, as applicable: (i) the nature of such
Intellectual Property Right; (ii) the owner of such Intellectual Property Right; (iii) the jurisdictions by or in which such Intellectual
Property Right has been issued or registered or in which an application for such issuance or registration has been filed; and
(iv) other than Standard Contracts, all licenses, sublicenses and other agreements pursuant to which any Person is authorized
to use such Intellectual Property Right.
(b) Within the past five
(5) years (or prior thereto if the same is still pending or subject to appeal or reinstatement) the Company Group has not been
sued or charged in writing with or been a defendant in any Action that involves a claim of infringement of any Intellectual Property
Rights, and the Company has no knowledge of any other claim of infringement by the Company Group, and no knowledge of any material
continuing infringement by any other Person of any Intellectual Property Rights of the Company Group.
(c) To the knowledge of
the Company Group, as of the date of this Agreement there are no material disputes or litigation with respect to any material
Intellectual Property Rights and the Company is not a party to any dispute or litigation relating to any Intellectual Property.
Any Intellectual Property Rights used by the Company Group in the performance of any services under any Contract is, and upon
the performance of such Contract remains, owned or in-licensed by the Company Group and no client, customer or other third-party
has any claim of ownership on the Intellectual Property Rights used by Company Group in the performance of any such Contract.
(d) All current and former
Israeli Company Employees have executed an instrument that includes a due waiver of the right to receive compensation in connection
with “Service Inventions” under Section 134 of the Israeli Patent Law-1967, and none of such persons has the right
to receive any such compensation.
(e) Except as disclosed
on Schedule 5.19(d), all employees, agents, consultants or contractors who have contributed to or participated in the creation
or development of any copyrightable, patentable or trade secret material on behalf of the Company Group or any predecessor in
interest thereto either: (i) is a party to a “work-for-hire” agreement under which the Company Group is deemed to
be the original owner/author of all property rights therein; or (ii) has executed an assignment or an agreement to assign in favor
of the Company Group (or such predecessor in interest, as applicable) all right, title and interest in such material or (iii)
has licensed to the Company Group rights to use such Intellectual Property Rights.
(f) None of the execution,
delivery or performance by the Company of this Agreement or any of the Additional Agreements to which the Company is a party or
the consummation by the Company of the transactions contemplated hereby or thereby will cause any material item of Intellectual
Property Rights owned, licensed, used or held for use by the Company Group immediately prior to the Closing to not be owned, licensed
or available for use by the Company Group on substantially the same terms and conditions immediately following the Closing.
(g) The Company has taken
reasonable measures to safeguard and maintain the confidentiality and value of all trade secrets and other items of Intellectual
Property Rights that are confidential and all other confidential information, data and materials licensed by the Company Group
or otherwise used in the operation of the Business. The transactions contemplated by this Agreement will not result in the violation
of any Data Protection Laws or the privacy policies of the Company Group.
5.20 Suppliers.
(a) Schedule 5.20(a) sets
forth a list of the Company Group’s ten (10) largest suppliers as measured by the dollar amount of purchases therefrom or
thereby, for the Company Group’s December 31, 2017 fiscal year, showing the approximate total purchases by the Company Group
from each such supplier, during each such period.
(b) Except as indicated
on Schedule 5.20(b), to the actual knowledge of the Company, no supplier listed on Schedule 5.20(a) has (i) terminated its relationship
with the Company Group, (ii) materially reduced its business with the Company Group or materially and adversely modified its relationship
with the Company Group, (iii) notified the Company Group in writing of its intention to take any such action, or (iv) to the knowledge
of the Company, become insolvent or subject to bankruptcy proceedings.
5.21 Accounts Receivable
and Payable; Loans.
(a) All accounts receivable
and notes of the Company Group reflected on the Financial Statements, and all accounts receivable and notes arising subsequent
to the date thereof, represent valid obligations arising from services actually performed or goods actually sold by the Company
Group in the ordinary course of business consistent with past practice. The accounts payable of the Company reflected on the Financial
Statements, and all accounts payable arising subsequent to the date thereof, arose from bona fide transactions in the ordinary
course consistent with past practice.
(b) To the best of the
Company’s knowledge, there is no contest, claim, or right of setoff in any agreement with any maker of an account receivable
or note relating to the amount or validity of such account, receivables or note involving an amount in excess of $400,000. Except
as set forth on Schedule 5.21(b), to the best knowledge of the Company, all accounts, receivables or notes are good and collectible
in the ordinary course of business.
(c) The information set
forth on Schedule 5.21(c) separately identifies any and all accounts, receivables or notes of the Company Group which are owed
by any Affiliate of the Company Group. Except as set forth on Schedule 5.21(c), the Company Group is not indebted to any of its
Affiliates and no Affiliates are indebted to the Company Group.
5.22 Pre-payments.
Except as set forth on Schedule 5.22, the Company Group has not received any payments with respect to any services to be rendered
or goods to be provided after the Closing except in the ordinary course of business.
5.23 Employees.
(a) Schedule 5.23(a) sets
forth a true, correct and complete list of each of the 5 highest compensated employees of the Company Group as of June 1, 2019,
setting forth the name, title, current salary or compensation rate for each such person and total compensation (including bonuses
and commissions) paid to each such person for the fiscal year ended December 31, 2018.
(b) Except as set forth
on Schedule 5.23(b), the Company Group is not a party to or subject to any collective bargaining agreement, or any similar
agreement, and there has been no activity or proceeding by a labor union or representative thereof to organize any employees of
the Company Group.
(c) There are no pending
or, to the knowledge of the Company, threatened claims or proceedings against the Company Group under any worker’s compensation
policy or long-term disability policy.
5.24 Employment Matters.
(a) Schedule 5.24(a) sets
forth a true and complete list of every employment agreement, commission agreement, employee group or executive medical, life,
or disability insurance plan, and each incentive, bonus, profit sharing, retirement, deferred compensation, equity, phantom stock,
stock option, stock purchase, stock appreciation right or severance plan of the Company Group now in effect or under which the
Company Group has or might have any obligation, or any understanding between the Company Group and any employee concerning the
terms of such employee’s employment that does not apply to the Company Group’s employees generally (collectively,
“Labor Agreements”). The Company Group has previously delivered to Purchaser true and complete copies of each
such Labor Agreement, any employee handbook or policy statement of the Company Group, and complete and correct information concerning
the Company Group’s employees.
(b) Except as disclosed
on Schedule 5.24(b):
(i) to the best
knowledge of the Company Group, no employee of the Company Group, in the ordinary course of his or her duties, has breached or
will breach any obligation to a former employer in respect of any covenant against competition or soliciting clients or employees
or servicing clients or confidentiality or any proprietary right of such former employer; and
(ii) the Company
Group is not a party to any collective bargaining agreement, does not have any material labor relations problems, and there is
no pending representation question or union organizing activity respecting employees of the Company Group.
5.25 Withholding.
Except as disclosed on Schedule 5.25, all obligations of the Company Group applicable to its employees, whether arising by operation
of Law, by contract, by past custom or otherwise, or attributable to payments by the Company Group to trusts or other funds or
to any governmental agency, with respect to unemployment compensation benefits, social security benefits or any other benefits
for its employees with respect to the employment of said employees through the date hereof have been paid or adequate accruals
therefor have been made on the Financial Statements. Except as disclosed on Schedule 5.25, all reasonably anticipated obligations
of the Company Group with respect to such employees (except for those related to wages during the pay period immediately prior
to the Closing Date and arising in the ordinary course of business), whether arising by operation of Law, by contract, by past
custom, or otherwise, for salaries and holiday pay, bonuses and other forms of compensation payable to such employees in respect
of the services rendered by any of them prior to the date hereof have been or will be paid by the Company Group prior to the Closing
Date.
5.26 Employee Benefits
and Compensation. Schedule 5.26 sets forth each “employee benefit plan” (as defined in Section 3(3) of ERISA),
bonus, deferred compensation, equity-based or non-equity-based incentive, severance or other plan or written agreement relating
to employee or director benefits or employee or director compensation or fringe benefits, maintained or contributed to by the
Company Group at any time during the 5-calendar year period immediately preceding the date hereof and/or with respect to which
the Company Group could incur or could have incurred any direct or indirect, fixed or contingent liability (each a “Plan”
and collectively, the “Plans”). Each Plan is in compliance with applicable law in all material respects.
5.27 Real Property.
(a) Except as set forth
on Schedule 5.27, the Company Group does not own, or otherwise have an interest in, any Real Property, including under any Real
Property lease, sublease, space sharing, license or other occupancy agreement. The Company Group has good, valid and subsisting
title to its respective leasehold estates in the offices described on Schedule 5.27, free and clear of all Liens. The Company
Group has not breached or violated any local zoning ordinance, and no notice from any Person has been received by the Company
Group or served upon the Company Group claiming any violation of any local zoning ordinance.
(b) With respect to the
Lease: (i) it is valid, binding and in full force and effect; (ii) all rents and additional rents and other sums, expenses and
charges due thereunder have been paid; (iii) the lessee has been in peaceable possession since the commencement of the original
term thereof; (iv) no waiver, indulgence or postponement of the lessee’s obligations thereunder has been granted by the
lessor; (v) there exist no default or event of default thereunder by the Company Group or, to the Company’s knowledge, by
any other party thereto; (vi) there exists no occurrence, condition or act which, with the giving of notice, the lapse of time
or the happening of any further event or condition, would become a default or event of default by the Company Group thereunder;
and (vii) there are no outstanding claims of breach or indemnification or notice of default or termination thereunder. The Company
Group holds the leasehold estate on the Lease free and clear of all Liens, except for Liens of mortgagees of the Real Property
in which such leasehold estate is located. The Real Property leased by the Company Group is in a state of maintenance and repair
in all material respects adequate and suitable for the purposes for which it is presently being used, and there are no material
repair or restoration works likely to be required in connection with any of the leased Real Properties. The Company Group is in
physical possession and actual and exclusive occupation of the whole of the leased property, none of which is subleased or assigned
to another Person. The Lease leases all useable square footage of the premise located at the leased Real Property. The Company
Group does not owe any brokerage commission with respect to any Real Property.
5.28 Accounts.
Schedule 5.28 sets forth a true, complete and correct list of the checking accounts, deposit accounts, safe deposit boxes, and
brokerage, commodity and similar accounts of the Company Group, including the account number and name, the name of each depositary
or financial institution and the address where such account is located and the authorized signatories thereto.
5.29 Tax Matters.
Except as set forth on Schedule 5.29:
(a) (i) The Company Group
has duly and timely filed all material Tax Returns which are required to be filed by or with respect to it, and has paid all Taxes
which have become due; (ii) all such Tax Returns are true, correct and complete and accurate in all material respects; (iii) there
is no Action, pending or proposed in writing, with respect to Taxes of the Company Group; (iv) no statute of limitations in respect
of the assessment or collection of any Taxes of the Company Group for which a Lien may be imposed on any of the Company Group’s
assets has been waived or extended, which waiver or extension is in effect; (v) the Company Group has complied in all respects
with all applicable Laws relating to the reporting, payment, collection and withholding of Taxes and has duly and timely withheld
or collected, paid over to the applicable Taxing Authority and reported all Taxes (including income, social, security and other
payroll Taxes) required to be withheld or collected by the Company Group; (vi) no stock transfer Tax, sales Tax, use Tax, real
estate transfer Tax or other similar Tax will be imposed on the transfer of the Ordinary Shares of the Company by the Shareholders
to the Purchaser pursuant to this Agreement; (vii) there is no Lien (other than Permitted Liens) for Taxes upon any of the assets
of the Company Group; (vii) other than the ruling application in connection with the agreement, there is no outstanding request
for a ruling from any Taxing Authority, request for a consent by a Taxing Authority for a change in a method of accounting, subpoena
or request for information by any Taxing Authority, or agreement with any Taxing Authority, with respect to the Company Group;
(ix) no claim has ever been made by a Taxing Authority in a jurisdiction where the Company Group has not paid any Tax or filed
Tax Returns, asserting that the Company Group is or may be subject to Tax in such jurisdiction, the Company Group is not nor has
it ever been subject to Tax in any country other than the respective countries of incorporation or formation of the Company Group
members by virtue of having a permanent establishment or other place of business in that country, and the members of the Company
Group are and have always been tax residents solely in their respective countries of incorporation or formation; (x) the Company
Group has provided to Purchaser true, complete and correct copies of all Tax Returns relating to, and all audit reports and correspondence
relating to each proposed adjustment, if any, made by any Taxing Authority with respect to, any taxable period ending after December
31, 2014; (xi) is not, and has ever been, a party to any Tax sharing or Tax allocation Contract; (xii) the Company Group is and
has never been included in any consolidated, combined or unitary Tax Return; (xiii) to the knowledge of the Company, no issue
has been raised by a Taxing Authority in any prior Action relating to the Company Group with respect to any Tax for any period
which, by application of the same or similar principles, could reasonably be expected to result in a proposed Tax deficiency of
the Company Group for any other period; and (xiv) the Company Group has not requested any extension of time within which to file
any Tax Return, which Tax Return has since not been filed.
(b) The Company Group will
not be required to include any item of income or exclude any item of deduction for any taxable period ending after the Closing
Date as a result of the use of a method of accounting with respect to any transaction that occurred on or before the Closing Date.
(c) The unpaid Taxes of
the Company Group (i) did not, as of the most recent fiscal month end, exceed the reserve for Tax liability (rather than any reserve
for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the Unaudited Financial
Statements and (ii) will not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with
the past custom and practice of the Company in filing its Tax Return.
(d) The Company Group has
been in compliance in all respects with all applicable transfer pricing laws and legal requirements. The prices for any property
or services (or for the use of any property), including interest and other prices for financial services, provided by or to the
Company Group are arm’s-length prices for purposes of the relevant transfer pricing laws, including Section 85A of the Ordinance
(or any comparable provisions of state, local or foreign Legal Requirements).
(e) The Company Group has
never made any election to be treated nor has it claimed any benefits as a “Benefited Enterprise” (Mifaal Mutav)
nor taken any position of being a “Preferred Enterprise” (Mifaal Muadaf) or a “Technology Enterprise”
(Mifaal Technology) under the Law for Encouragement of Capital Investments, 1959.
(f) The Company is duly
registered for the purposes of Israeli value added Taxes (“VAT”) and has complied in all respects with all
requirements concerning VAT. The Company (i) has not made any exempt transactions (as defined in the Israel Value Added Tax Law
of 1975) and there are no circumstances by reason of which there might not be an entitlement to full credit of all VAT chargeable
or paid on inputs, supplies, and other transactions and imports made by it, (ii) has collected and timely remitted to the relevant
Tax authority all output VAT which it is required to collect and remit under any Legal Requirements, and (iii) has not received
a refund for input VAT for which it is not entitled under any Legal Requirements. The Company Group (other than the Company) is
not required to register in Israel for Israeli VAT purposes.
(g) The Company Group does
not participate and has never participated or engaged in any transaction listed in Section 131(g) of the Ordinance and the Income
Tax Regulations (Reportable Tax Planning), 5767-2006 promulgated thereunder, or any similar provision under any other local or
foreign Tax Legal Requirement. The Company Group is not subject to any reporting obligations under Sections 131D and 131E of the
Ordinance or any similar provision under any other local or foreign Tax Legal Requirement, and including with respect to VAT.
(h) The Company Group is
not nor has it ever been a real estate corporation (Igud Mekarke’in) within the meaning of this term under Section
1 of the Israeli Land Taxation Law (Appreciation and Acquisition), 5723-1963.
(i) The Equity Incentive
Plan is deemed approved by, or deemed approved by passage of time without objection by, the ITA. All 102 Company Securities which
were issued under the Plan have been granted and issued, as applicable, in compliance with the applicable requirements of Section
102 of the Ordinance and the written requirements and guidance of the ITA, including the filing of the necessary documents with
the ITA, the appointment of an authorized trustee to hold the Company Securities, and the due deposit of such Company Securities
with the 102 trustee pursuant to the terms of Section 102 of the Ordinance and the guidance published by the ITA on July 24, 2012
and clarification dated November 6, 2012. All Tax rulings, and filings with the ITA relating to the Equity Incentive Plan and
any award thereunder have been provided to Purchaser.
5.30 Environmental
Laws.
(a) Except as set forth
in Schedule 5.30, the Company Group has not (i) received any written notice of any alleged claim, violation of or Liability under
any Environmental Law which has not heretofore been cured or for which there is any remaining liability; (ii) disposed of, emitted,
discharged, handled, stored, transported, used or released any Hazardous Materials, arranged for the disposal, discharge, storage
or release of any Hazardous Materials, or exposed any employee or other individual to any Hazardous Materials so as to give rise
to any Liability or corrective or remedial obligation under any Environmental Laws; or (iii) entered into any agreement that may
require it to guarantee, reimburse, pledge, defend, hold harmless or indemnify any other Person with respect to liabilities arising
out of Environmental Laws or the Hazardous Materials Activities of the Company Group.
(b) The Company Group has
delivered to Purchaser copies of all material Permits in its possession concerning the Hazardous Materials Activities of the Company
Group.
(c) Except as set forth
on Schedule 5.30(c), there are no Hazardous Materials in, on, or under any properties owned, leased or used at any time by the
Company Group such as could give rise to any material liability or corrective or remedial obligation of the Company Group under
any Environmental Laws.
5.31 Finders’
Fees. Except as set forth on Schedule 5.31, there is no investment banker, broker, finder or other intermediary which has
been retained by or is authorized to act on behalf of the Company Group or any of Affiliates who might be entitled to any fee
or commission from the Company, Merger Sub, Purchaser or any of their Affiliates upon consummation of the transactions contemplated
by this Agreement.
5.32 Powers of Attorney
and Suretyships. Except as set forth on Schedule 5.32, the Company Group does not have any general or special powers of attorney
outstanding (whether as grantor or grantee thereof) or any obligation or liability (whether actual, accrued, accruing, contingent,
or otherwise) as guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise in respect of the obligation of any
Person.
5.33 Directors and
Officers. Schedule 5.33 sets forth a true, correct and complete list of all directors and officers of the Company Group.
5.34 Anti-Money Laundering
Laws. The operations of the Company Group are and have been conducted at all times in compliance with anti-money laundering
statutes in all applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or
guidelines, issued, administered or enforced by any governmental authority (collectively, the “Money Laundering Laws”),
and no Action involving the Company Group with respect to the Money Laundering Laws is pending or, to the knowledge of the Company,
threatened.
5.35 Insurance.
All forms of insurance owned or held by and insuring the Company Group are set forth on Schedule 5.36, and such policies are in
full force and effect. All premiums with respect to such policies covering all periods up to and including the Closing Date have
been paid, and no notice of cancellation or termination has been received with respect to any such policy which was not replaced
on substantially similar terms prior to the date of such cancellation or termination. There is no existing default or event which,
with or without the passage of time or the giving of notice or both, would constitute as noncompliance with any such policy or
constitute a default under any such policy or entitle any insurer to terminate or cancel any such policy. Such policies will not
in any way be affected by or terminate or lapse by reason of the transactions contemplated by this Agreement or the Additional
Agreements. The insurance policies to which the Company Group is a party are sufficient for compliance with all requirements of
all Contracts to which the Company Group is a party or by which the Company Group is bound. In the three (3) years preceding the
date of this Agreement, the Company Group has not been refused any insurance with respect to its assets or operations or had its
coverage limited by any insurance carrier to which it has applied for any such insurance or with which it has carried insurance.
The Company Group does not have any self-insurance arrangements.
5.36 Related Party
Transactions. Except as set forth in Schedule 5.36, as contemplated by this Agreement or as provided in the Financial Statements,
no Affiliate of the Company Group (a) is a party to any Contract, or has otherwise entered into any transaction, understanding
or arrangement, with the Company Group or (b) owns any property or right, tangible or intangible, which is used by the Company
Group. None of the contracts listed in Schedule 5.36 was entered into on a basis other than on arm’s length.
ARTICLE
VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB
Except as disclosed in the
Purchaser SEC Documents filed with or furnished to the SEC prior to the date of this Agreement (other than any risk factor disclosures
or other similar cautionary or predictive statements therein), Purchaser and Merger Sub (the “Purchaser Parties”)
hereby represent and warrant to the Company that each of the following representations and warranties are true, correct and complete
as of the date of this Agreement and as of the Closing Date:
6.1 Corporate Existence
and Power. Purchaser is a corporation duly incorporated, validly existing and in good standing under the laws of the Delaware.
Merger Sub is a company duly organized and validly existing under the laws of the State of Israel and is not a “defaulting
company” as defined in the Companies Law. Merger Sub does not hold and has not held any material assets or incurred any
material liabilities, and has not carried on any business activities other than in connection with the Merger.
6.2 Corporate Authorization.
The execution, delivery and performance by the Purchaser Parties of this Agreement and the Additional Agreements and the consummation
by the Purchaser Parties of the transactions contemplated hereby and thereby are within the corporate powers of the Purchaser
Parties and have been duly authorized by all necessary corporate action on the part of the Purchaser Parties. This Agreement has
been duly executed and delivered by the Purchaser Parties and it constitutes, and upon its execution and delivery, the Additional
Agreements will constitute, a valid and legally binding agreement of the Purchaser Parties, enforceable against it in accordance
with its terms, except as may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement
of creditors’ rights generally and by general principles of equity. This Agreement and the other Additional Agreements and
the transactions contemplated thereunder have been duly approved by the Purchaser, in its capacity as sole shareholder of Merger
Sub. The affirmative vote of holders of a majority of the outstanding shares of Purchaser Common Stock entitled to vote at the
Purchaser Stockholder Meeting, assuming a quorum is present, to approve the adoption of the Merger and this Agreement is the only
vote of any of Purchaser’s capital stock necessary in connection with the entry into this Agreement or any Additional Agreement
by Purchaser and the consummation of the transactions contemplated hereby and thereby, including the Closing (the “Purchaser
Stockholder Approval”).
6.3 Governmental Authorization.
Assuming the accuracy of the representations and warranties set forth in Section 5.3, neither the execution, delivery nor
performance of this Agreement requires any consent, approval, license or other action by or in respect of, or registration, declaration
or filing with any Authority.
6.4 Non-Contravention.
The execution, delivery and performance by the Purchaser Parties of this Agreement does not and will not (i) contravene or conflict
with the organizational or constitutive documents of the Purchaser Parties, or (ii) contravene or conflict with or constitute
a violation of any provision of any Law, judgment, injunction, order, writ, or decree binding upon the Purchaser Parties.
6.5 Finders’
Fees. Except for any liabilities for fees or commissions described on Schedule 5.31 (which are the responsibility of the Company),
there is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf
of the Purchaser Parties or their Affiliates who might be entitled to any fee or commission from the Company or any of its Affiliates
upon consummation of the transactions contemplated by this Agreement or any of the Additional Agreements.
6.6 Issuance of Shares.
The Closing Payment Shares, when issued in accordance with this Agreement, will be duly authorized and validly issued, and will
be fully paid and nonassessable.
6.7 Capitalization.
(a) The authorized capital
stock of Purchaser consists of 30,000,000 shares of Purchaser Common Stock, and 1,000,000 shares of preferred stock, par value
$0.0001 per share (“Purchaser Preferred Stock”) of which 10,062,500 shares of Purchaser Common Stock (inclusive
of Purchaser Common Stock included in any outstanding Purchaser Units), and no shares of Purchaser Preferred Stock are issued
and outstanding. In addition, 10,950,000 Purchaser Warrants (inclusive of Purchaser Public Warrants included in any outstanding
Purchaser Units) are issued and outstanding. No other shares of capital stock or other voting securities of Purchaser are issued,
reserved for issuance or outstanding. All issued and outstanding shares of Purchaser Common Stock are duly authorized, validly
issued, fully paid and nonassessable and not subject to or issued in violation of any purchase option, right of first refusal,
preemptive right, subscription right or any similar right under any provision of the Delaware General Corporation Law, the Purchaser’s
organizational documents or any contract to which Purchaser is a party or by which Purchaser is bound. Except as set forth in
the Purchaser’s organizational documents, there are no outstanding contractual obligations of Purchaser to repurchase, redeem
or otherwise acquire any shares of Purchaser Common Stock or any capital equity of Purchaser. There are no outstanding contractual
obligations of Purchaser to provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise)
in, any other Person.
(b) The Merger Sub is authorized
to issue 10,000,000 shares with no par value (“Merger Sub Common Stock”) of which 100,000 shares of Merger
Sub Common Stock are issued and outstanding as of the date hereof. No other shares or other voting securities of Merger Sub are
issued, reserved for issuance or outstanding. All issued and outstanding shares of Merger Sub Common Stock are duly authorized,
validly issued, fully paid and nonassessable and not subject to or issued in violation of any purchase option, right of first
refusal, preemptive right, subscription right or any similar right under any provision of Israeli law, the Merger Sub’s
organizational documents or any contract to which Merger Sub is a party or by which Merger Sub is bound. Except as set forth in
the Merger Sub’s organizational documents, there are no outstanding contractual obligations of Merger Sub to repurchase,
redeem or otherwise acquire any shares of Merger Sub Common Stock or any capital equity of Merger Sub. There are no outstanding
contractual obligations of Merger Sub to provide funds to, or make any investment (in the form of a loan, capital contribution
or otherwise) in, any other Person.
6.8 Information Supplied.
None of the information supplied or to be supplied by the Purchaser Parties expressly for inclusion or incorporation by reference
in the filings with the SEC and mailings to Purchaser’s stockholders with respect to the solicitation of proxies to approve
the transactions contemplated by this Agreement and the Additional Agreements, if applicable, including the SEC Statement or any
Other Filings, or in any other Additional Purchaser SEC Documents, will, at the date of filing and/ or mailing, at the time of
the Purchaser Stockholder Meeting or at the Effective Time, as the case may be, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading (subject to the qualifications and limitations set forth in the
materials provided by Purchaser or that is included in the Purchaser SEC Documents, the Additional Purchaser SEC Documents, the
SEC Statement or any Other Filing).
6.9 Trust Fund.
As of the date of this Agreement, Purchaser has at least $70,881,150.89 as of June 30, 2019 in the trust fund established by Purchaser
for the benefit of its public stockholders (the “Trust Fund”) in a trust account maintained by Continental
Stock Transfer & Trust Company (the “Trustee”) at Morgan Stanley (the “Trust Account”),
and such monies are invested in “government securities” (as such term is defined in the Investment Company Act of
1940, as amended) and held in trust by the Trustee pursuant to the Investment Management Trust Agreement, dated as of December
18, 2018, between Purchaser and the Trustee (the “Trust Agreement”). The Trust Agreement is valid and in full
force and effect and enforceable in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity, and
has not been amended or modified. There are no separate agreements, side letters or other agreements or understandings (whether
written or unwritten, express or implied) that would cause the description of the Trust Agreement in the Purchaser SEC Documents
to be inaccurate in any material respect and/or that would entitle any Person (other than stockholders of Purchaser holding shares
of Purchaser Common Stock sold in Purchaser’s IPO who shall have elected to redeem their shares of Purchaser Common Stock
pursuant to the Certificate of Incorporation) to any portion of the proceeds in the Trust Account. Prior to the Closing, none
of the funds held in the Trust Account may be released except in accordance with the Trust Agreement and the Purchaser’s
organizational documents. Purchaser has performed all material obligations required to be performed by it to date under, and is
not in material default or delinquent in performance or any other respect (claimed or actual) in connection with, the Trust Agreement,
and, to the knowledge of Purchaser, no event has occurred which, with due notice or lapse of time or both, would constitute such
a material default thereunder. There are no claims or proceedings pending with respect to the Trust Account.
6.10 Listing. The
Purchaser Units, Purchaser Common Stock and Purchaser Warrants are listed on the NYSE American, with trading tickets CHACU, CHAC,
CHACW
6.11 Board Approval.
The Purchaser’s board of directors (including any required committee or subgroup of such board) has, as of the date of this
Agreement, unanimously (i) declared the advisability of the transactions contemplated by this Agreement, (ii) determined that
the transactions contemplated hereby are in the best interests of the stockholders of Purchaser and (iii) determined that the
transactions contemplated hereby constitutes a “Business Combination” as such term is defined in Purchaser’s
amended and restated certificate of incorporation and bylaws.
6.12 Purchaser SEC
Documents and Financial Statements. Purchaser has filed all forms, reports, schedules, statements and other documents, including
any exhibits thereto, required to be filed or furnished by Purchaser with the SEC since Purchaser’s formation under the
Exchange Act or the Securities Act, together with any amendments, restatements or supplements thereto, and will use commercially
reasonable efforts to file all such forms, reports, schedules, statements and other documents required to be filed subsequent
to the date of this Agreement (the “Additional Purchaser SEC Documents”). Purchaser has made available to the
Company copies in the form filed with the SEC of all of the following, except to the extent available in full without redaction
on the SEC’s website through EDGAR for at least two (2) days prior to the date of this Agreement: (i) Purchaser’s
Annual Reports on Form 10-K for each fiscal year of Purchaser beginning with the first year Purchaser was required to file such
a form, (ii) all proxy statements relating to Purchaser’s meetings of stockholders (whether annual or special) held, and
all information statements relating to stockholder consents, since the beginning of the first fiscal year referred to in clause
(i) above, (iii) its Form 8-Ks filed since the beginning of the first fiscal year referred to in clause (i) above, and (iv) all
other forms, reports, registration statements and other documents (other than preliminary materials if the corresponding definitive
materials have been provided to the Company pursuant to this Section 6.12) filed by Purchaser with the SEC since Purchaser’s
formation (the forms, reports, registration statements and other documents referred to in clauses (i), (ii), (iii), and (iv) above,
whether or not available through EDGAR, are, collectively, the (“Purchaser SEC Documents”). The Purchaser SEC
Documents were, and the Additional Purchaser SEC Documents will be, prepared in all material respects in accordance with the requirements
of the Securities Act, the Exchange Act, and the Sarbanes-Oxley Act, as the case may be, and the rules and regulations thereunder.
The Purchaser SEC Documents did not, and the Additional Purchaser SEC Documents will not, at the time they were or are filed,
as the case may be, with the SEC (except to the extent that information contained in any Purchaser SEC Document or Additional
Purchaser SEC Document has been or is revised or superseded by a later filed Purchaser SEC Document or Additional Purchaser SEC
Document, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the foregoing does not apply to statements in or omissions
in any information supplied or to be supplied by the Company Group expressly for inclusion or incorporation by reference in any
SEC Statement or Other Filing. As used in this Section 6.12, the term “file” shall be broadly construed to include
any manner in which a document or information is furnished, supplied or otherwise made available to the SEC.
6.13 Certain Business
Practices. Neither the Purchaser, nor any director, officer, agent or employee of the Purchaser (in their capacities as such)
has (i) used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity,
(ii) made any unlawful payment to foreign or domestic government officials or employees, to foreign or domestic political parties
or campaigns or violated any provision of the Foreign Corrupt Practices Act of 1977 or (iii) made any other unlawful payment.
Neither the Purchaser, nor any director, officer, agent or employee of the Purchaser (nor any Person acting on behalf of any of
the foregoing, but solely in his or her capacity as a director, officer, employee or agent of the Purchaser) has, since the IPO,
directly or indirectly, given or agreed to give any gift or similar benefit in any material amount to any customer, supplier,
governmental employee or other Person who is or may be in a position to help or hinder the Purchaser or assist the Purchaser in
connection with any actual or proposed transaction, which, if not given or continued in the future, would reasonably be expected
to adversely affect the business or prospects of the Purchaser and would reasonably be expected to subject the Purchaser to suit
or penalty in any private or governmental litigation or proceeding.
6.14 Anti-Money Laundering
Laws. The operations of the Purchaser are and have been conducted at all times in compliance with the Money Laundering Laws,
and no Action involving the Purchaser with respect to the Money Laundering Laws is pending or, to the knowledge of the Purchaser,
threatened.
6.15 Affiliate Transactions.
Except as described in the Purchaser SEC Documents, there are no transactions, agreements, arrangements or understandings between
any of Purchaser or any of its subsidiaries, on the one hand, and any director, officer, employee, stockholder, warrant holder
or Affiliate of Purchaser or any of its subsidiaries.
6.16 Litigation.
There is no (i) suit, action, charge, complaint, arbitration or similar proceeding pending, or, to the knowledge of Purchaser,
threatened against Purchaser or any of its subsidiaries and no such suit, action, charge, complaint, arbitration or similar proceeding
has been filed against Purchaser or any of its subsidiaries, or any of its or their assets or properties, or (ii) judgment, decree,
injunction, rule or order of any Authority outstanding against Purchaser or any of its subsidiaries or any of its or their assets
or properties. Neither Purchaser nor any of its subsidiaries is party to a settlement or similar agreement regarding any of the
matters set forth in the preceding sentence that contains any ongoing obligations, restrictions or liabilities (of any nature)
that are material to Purchaser and its subsidiaries.
6.17 Expenses, Indebtedness
and Other Liabilities. Except as set forth in Schedule 6.17 Purchaser does not have any Indebtedness or other liabilities.
6.18 Tax Matters.
(a) (i) The Purchaser has
duly and timely filed all material Tax Returns which are required to be filed by or with respect to it, and has paid all Taxes
which have become due; (ii) all such Tax Returns are true, correct and complete and accurate in all material respects; (iii) there
is no Action, pending or proposed in writing, with respect to Taxes of the Purchaser; (iv) no statute of limitations in respect
of the assessment or collection of any Taxes of the Purchaser for which a Lien may be imposed on any of the Purchaser’s
assets has been waived or extended, which waiver or extension is in effect; (v) the Purchaser has complied in all respects with
all applicable Laws relating to the reporting, payment, collection and withholding of Taxes and has duly and timely withheld or
collected, paid over to the applicable Taxing Authority and reported all Taxes (including income, social, security and other payroll
Taxes) required to be withheld or collected by the Purchaser; (vi) no stock transfer Tax, sales Tax, use Tax, real estate transfer
Tax or other similar Tax will be imposed on the transfer of the Ordinary Shares of the Purchaser by the Shareholders to the Purchaser
pursuant to this Agreement; (vii) there is no Lien (other than Permitted Liens) for Taxes upon any of the assets of the Purchaser;
(viii) other than the Israeli Tax Ruling, there is no outstanding request for a ruling from any Taxing Authority, request for
a consent by a Taxing Authority for a change in a method of accounting, subpoena or request for information by any Taxing Authority,
or agreement with any Taxing Authority, with respect to the Purchaser; (ix) no claim has ever been made by a Taxing Authority
in a jurisdiction where the Purchaser has not paid any Tax or filed Tax Returns, asserting that the Purchaser is or may be subject
to Tax in such jurisdiction, the Purchaser is not nor has it ever been subject to Tax in any country other than the respective
countries of incorporation or formation of the Purchaser members by virtue of having a permanent establishment or other place
of business in that country, and the members of the Purchaser are and have always been tax residents solely in their respective
countries of incorporation or formation; (x) the Purchaser has provided to Purchaser true, complete and correct copies of all
Tax Returns relating to, and all audit reports and correspondence relating to each proposed adjustment, if any, made by any Taxing
Authority with respect to, any taxable period ending after December 31, 2014; (xi) there is no outstanding power of attorney from
the Purchaser authorizing anyone to act on behalf of the Purchaser in connection with any Tax, Tax Return or Action relating to
any Tax or Tax Return of the Purchaser; (xii) the Purchaser is not, and has ever been, a party to any Tax sharing or Tax allocation
Contract; (xiii) the Purchaser is and has never been included in any consolidated, combined or unitary Tax Return; (xiv) to the
knowledge of the Purchaser, no issue has been raised by a Taxing Authority in any prior Action relating to the Purchaser with
respect to any Tax for any period which, by application of the same or similar principles, could reasonably be expected to result
in a proposed Tax deficiency of the Purchaser for any other period; and (xiv) the Purchaser has not requested any extension of
time within which to file any Tax Return, which Tax Return has since not been filed.
(b) The Purchaser will
not be required to include any item of income or exclude any item of deduction for any taxable period ending after the Closing
Date as a result of the use of a method of accounting with respect to any transaction that occurred on or before the Closing Date.
(c) The unpaid Taxes of
the Purchaser (i) did not, as of the most recent fiscal month end, exceed the reserve for Tax liability (rather than any reserve
for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the Unaudited Financial
Statements and (ii) will not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with
the past custom and practice of the Purchaser in filing its Tax Return.
(d) The Purchaser has been
in compliance in all respects with all applicable transfer pricing laws and legal requirements. The prices for any property or
services (or for the use of any property), including interest and other prices for financial services, provided by or to the Purchaser
are arm’s-length prices for purposes of the relevant transfer pricing laws.
(e) The Purchaser is not
aware of any fact or circumstance that would reasonably be expected to prevent the Merger from qualifying as a “reorganization”
within the meaning of Section 368(a) of the Code.
ARTICLE
VII
COVENANTS OF THE PARTIES PENDING CLOSING
7.1 Conduct of the
Business. Each of the Company and the Purchaser covenants and agrees that:
(a) from the date hereof
through the Closing Date, each party shall conduct business only in the ordinary course, (including the payment of accounts payable
and the collection of accounts receivable), consistent with past practices, and shall not enter into any material transactions
outside the ordinary course of business without the prior written consent of the other party, and shall use its reasonable best
efforts to preserve intact its business relationships with employees, clients, suppliers and other third parties. Without limiting
the generality of the foregoing, from the date hereof until and including the Closing Date, without the other party’s prior
written consent (which shall not be unreasonably withheld), neither party shall, and the Company shall cause its Subsidiaries
not to:
(i) amend, modify
or supplement its certificate of incorporation and bylaws or other organizational or governing documents;
(ii) amend, waive
any provision of, terminate prior to its scheduled expiration date, or otherwise compromise in any way, any material Contract
or any other right or asset of the Company or Purchaser;
(iii) modify,
amend or enter into any contract, agreement, lease, license or commitment, which (A) is with respect to Real Property, (B) extends
for a term of one year or more or (C) obligates the payment of more than $500,000 (individually or in the aggregate);
(iv) make any
capital expenditures in excess of $500,000 (individually or in the aggregate);
(v) sell, lease,
license or otherwise dispose of any of the Company Group’s or Purchaser’s assets or assets covered by any Contract
except pursuant to existing contracts or commitments disclosed herein;
(vi) accept returns
of products sold from Inventory except in the ordinary course, consistent with past practice;
(vii) pay, declare
or promise to pay any dividends or other distributions with respect to its capital stock or other equity securities, or pay, declare
or promise to pay any other payments to any stockholder or shareholder or other equityholder (other than payment of salary, benefits,
leases, commissions and other regular and necessary similar payments in the ordinary course);
(viii) obtain
or incur any loan or other Indebtedness, including drawings under the Company Group’s or the Purchaser’s existing
lines of credit, or repay or satisfy any Indebtedness other than repayment of Indebtedness in accordance with the terms thereof;
(ix) suffer or
incur any Lien, except for Permitted Liens, on the Company Group’s assets;
(x) suffer any
damage, destruction or loss of property related to any of the Company Group’s or the Purchaser’s assets, whether or
not covered by insurance;
(xi) delay, accelerate
or cancel any receivables or Indebtedness owed to the Company Group or the Purchaser or write off or make further reserves against
the same;
(xii) merge or
consolidate with or acquire any other Person or be acquired by any other Person;
(xiii) permit
any insurance policy protecting any of the Company Group’s or the Purchaser’s assets to lapse, unless simultaneously
with such lapse, a replacement policy underwritten by an insurance company of nationally recognized standing having comparable
deductions and providing coverage equal to or greater than the coverage under the lapsed policy for substantially similar premiums
or less is in full force and effect;
(xiv) adopt any
severance, retention or other employee plans, amend any of its employee plans or fail to continue to make timely contributions
thereto in accordance with the terms thereof;
(xv) institute,
settle or agree to settle any litigation, action, proceeding or investigation before any court or governmental body in each case
in excess of $500,000 (exclusive of any amounts covered by insurance) or that imposes injunctive or other non-monetary relief
on such party;
(xvi) make any
change in its accounting principles or methods or write down the value of any Inventory or assets;
(xvii) change
the place of business or jurisdiction of organization;
(xviii) issue,
redeem or repurchase any capital stock, membership interests or other securities, or issue any securities exchangeable for or
convertible into any shares of its capital stock or other securities (other than any redemption by the Purchaser of its stockholder
pursuant to Section 7.6, or as otherwise contemplated herein);
(xix) make or
change any material Tax election or change any annual Tax accounting periods;
(xx) enter into
any transaction with or distribute or advance any assets or property to any of its Affiliates other than the payment of salary
and benefits in the ordinary course; or
(xxi) agree to
do any of the foregoing.
(b) Neither party shall
knowingly and intentionally (i) take or agree to take any action that might make any representation or warranty of such party
inaccurate or misleading in any respect at, or as of any time prior to, the Closing Date or (ii) omit to take, or agree to omit
to take, any action necessary to prevent any such representation or warranty from being inaccurate or misleading in any respect
at any such time.
(c) From the date hereof
through the Closing Date, neither the Company Group, on the one hand, nor the Purchaser, on the other hand, shall, and such Persons
shall use reasonable best efforts to cause each of their respective officers, directors, Affiliates, managers, consultant, employees,
representatives and agents not to, directly or indirectly, (i) encourage, solicit, initiate, engage or participate in negotiations
with any Person concerning any Alternative Transaction, (ii) take any other action intended or designed to facilitate the efforts
of any Person relating to a possible Alternative Transaction or (iii) approve, recommend or enter into any Alternative Transaction
or any Contract related to any Alternative Transaction. For purposes of this Agreement, the term “Alternative Transaction”
shall mean any of the following transactions involving the Company Group or the Purchaser (other than the transactions contemplated
by this Agreement): (i) any merger, consolidation, share exchange, business combination or other similar transaction, or (ii)
any sale, lease, exchange, transfer or other disposition of a material portion of the assets of such Person (other than sales
of inventory in the ordinary course of business) or any class or series of the capital stock or other equity interests of the
Company Group or the Purchaser in a single transaction or series of transactions. In the event that there is an unsolicited proposal
for, or an indication of a serious interest in entering into, an Alternative Transaction, communicated in writing to the Company
Group or the Purchaser or any of their respective representatives or agents (each, an “Alternative Proposal”),
such party shall as promptly as practicable (and in any event within one (1) Business Day after receipt) advise the other parties
to this Agreement orally and in writing of any Alternative Proposal and the material terms and conditions of any such Alternative
Proposal (including any changes thereto) and the identity of the person making any such Alternative Proposal. The Company and
the Purchaser shall keep the other parties informed on a reasonably current basis of material developments with respect to any
such Alternative Proposal.
7.2 Access to Information.
From the date hereof until and including the Closing Date, the Company and the Purchaser shall each, to the best of its ability,
(a) continue to give the other party, its legal counsel and other representatives full access to the offices, properties and,
Books and Records, (b) furnish to the other party, its legal counsel and other representatives such information relating to the
business of the Company Group and the Purchaser as such Persons may request and (c) cause the employees, legal counsel, accountants
and representatives to cooperate with the other party in its investigation of the Business; provided that no investigation pursuant
to this Section (or any investigation prior to the date hereof) shall affect any representation or warranty given by the Company
or the Purchaser and, provided further, that any investigation pursuant to this Section shall be conducted in such manner as not
to interfere unreasonably with the conduct of the Business of the Company. Notwithstanding anything to the contrary in this Agreement,
neither party shall be required to provide the access described above or disclose any information if doing so is reasonably likely
to (i) result in a waiver of attorney-client privilege, work product doctrine or similar privilege or (ii) violate any
contract to which it is a party or to which it is subject or applicable Law.
7.3 Notices of Certain
Events. Each of the Purchaser and the Company shall promptly notify the other party of:
(a) any notice or other
communication from any Person alleging or raising the possibility that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement or that the transactions contemplated by this Agreement might give rise to
any Action or other rights by or on behalf of such Person or result in the loss of any rights or privileges of the Company (or
the Purchaser, post-Closing) to any such Person or create any Lien on any Company Capital Stock or capital stock of the Purchaser
or any of the Company Group’s or the Purchaser’s assets;
(b) any notice or other
communication from any Authority in connection with the transactions contemplated by this Agreement or the Additional Agreements;
(c) any Actions commenced
or threatened against, relating to or involving or otherwise affecting either party or any of their stockholders or their equity,
assets or business or that relate to the consummation of the transactions contemplated by this Agreement or the Additional Agreements;
(d) the occurrence of any
fact or circumstance which constitutes or results, or would reasonably be expected to constitute or result in a Material Adverse
Change; and
(e) any inaccuracy of any
representation or warranty of such party contained in this Agreement at any time during the term hereof, or any failure of such
party to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, that would
reasonably be expected to cause any of the conditions set forth in Article X not to be satisfied.
7.4 Annual and Interim
Financial Statements. From the date hereof through the Closing Date, within sixty (60) calendar days following the end of
each three-month quarterly period, the Company shall deliver to Purchaser an unaudited consolidated summary of the Company Group’s
earnings and an unaudited consolidated balance sheet for the period from the Balance Sheet Date through the end of such quarterly
period and the applicable comparative period in the preceding fiscal year. The Company shall also promptly deliver to Purchaser
copies of any audited consolidated financial statements of the Company Group that the Company’s certified public accountants
may issue.
7.5 SEC Filings.
(a) The Company acknowledges
that:
(i) the Purchaser’s
stockholders must approve the transactions contemplated by this Agreement prior to the transactions contemplated hereby being
consummated and that, in connection with such approval, the Purchaser must call a special meeting of its stockholders (the “Purchaser
Stockholder Meeting”) requiring Purchaser to prepare and file with the SEC a proxy statement and proxy card (the “Proxy
Statement”);
(ii) the Purchaser
will be required to file Quarterly and Annual reports that may be required to contain information about the transactions contemplated
by this Agreement; and
(iii) the Purchaser
will be required to file Current Reports on Form 8-K to announce the transactions contemplated hereby and other significant events
that may occur in connection with such transactions.
(b) Purchaser shall call
and hold the Purchaser Stockholder Meeting as promptly as practicable after the date of this Agreement for the purpose of seeking
the Purchaser Stockholder Approval, and Purchaser shall use reasonable best efforts to hold the Purchaser Stockholder Meeting
as soon as practicable after the date of this Agreement and Purchaser shall consult in good faith with the Company with respect
to the date on which such meeting is to be held. Purchaser shall use reasonable best efforts to solicit from its stockholders
proxies in favor of the approval and adoption of the Merger and this Agreement and shall take all other action reasonably necessary
or advisable to secure the Purchaser Stockholder Approval. The Company acknowledges that a substantial portion of the Proxy Statement
shall include disclosure regarding the Company and its management, operations and financial condition. Accordingly, the Company
agrees to as promptly as reasonably practical provide Purchaser with such information as shall be reasonably requested by Purchaser
for inclusion in or attachment to the Proxy Statement, and that such information is accurate in all material respects and complies
as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder.
The Company understands that such information shall be included in the Proxy Statement and/or responses to comments from the SEC
or its staff in connection therewith and mailings. The Company shall make, and cause each Subsidiary to make, their managers,
directors, officers and employees available to Purchaser and its counsel in connection with the drafting of such filings and mailings
and responding in a timely manner to comments from the SEC.
7.6 Trust Account.
The Purchaser covenants that it shall make appropriate arrangements to cause the funds in the Trust Account to be disbursed in
accordance with the Trust Agreement and for the payment of (i) all amounts payable to stockholders of Purchaser holding Purchaser
Units or Purchaser Common Stock who shall have validly redeemed their Purchaser Units or Purchaser Common Stock upon acceptance
by the Purchaser of such Purchaser Units or Purchaser Common Stock (the “Purchaser Redemption Amount”), (ii)
the expenses to the third parties to which they are owed, and (iii) the remaining monies in the Trust Account to Purchaser.
7.7 Merger Proposal.
As promptly as practicable after the execution and delivery of this Agreement: (i) Company and Merger Sub shall cause the merger
proposal (in the Hebrew language) in substantially the form annexed hereto as Exhibit H (the “Merger Proposal”)
to be executed in accordance with Section 316 of the Companies Law; and (ii) each of the Company and Merger Sub shall deliver
the Merger Proposal to the Registrar of Companies within three days from the calling of the Company’s shareholders’
meeting in accordance with Section 317(a) of the Companies Law. The Company and Merger Sub shall cause a copy of the Merger Proposal
to be delivered to each of their respective secured creditors, if any, no later than three days after the date on which the Merger
Proposal is delivered to the Registrar of Companies, and each of their respective material creditors, if any, no later than three
days after the date on which the Merger Proposal is delivered to the Registrar of Companies, and shall promptly inform their respective
non-secured creditors of the Merger Proposal and its contents in accordance with Section 318 of the Companies Law and the regulations
promulgated thereunder. Promptly after the Company and Merger Sub shall have complied with the immediately preceding sentence
and with paragraphs 7.9(a) through 7.9 (d) of this Section 7.7, but in any event no more than three days following the date on
which such notice was sent to the creditors, the Company and Merger Sub shall inform the Registrar of Companies, in accordance
with Section 317(b) of the Companies Law, that notice was given to their respective creditors under Section 318 of the Companies
Law and the regulations promulgated thereunder. In addition to the foregoing, the Company and, if applicable, Merger Sub, shall:
(a) publish a notice to
its creditors, stating that a Merger Proposal was submitted to the Registrar of Companies and that the creditors may review the
Merger Proposal at the office of the Registrar of Companies, the Company’s registered offices or Merger Sub’s registered
offices, as applicable, and at such other locations as the Company or Merger Sub, as applicable, may determine, in (i) two daily
Hebrew newspapers and a newspaper in such other locations as required by the Companies Regulations (Merger), 5760-2000, on the
day that the Merger Proposal is submitted to the Registrar of Companies, and (ii) if required, in such other manner as may be
required by any applicable law and regulations;
(b) within four business
days from the date of submitting the Merger Proposal to the Registrar of Companies, send a notice by registered mail to all of
the “Substantial Creditors” (as such term is defined in the regulations promulgated under the Companies Law) that
the Company or Merger Sub, as applicable, is aware of, in which it shall state that a Merger Proposal was submitted to the Registrar
of Companies and that the creditors may review the Merger Proposal at such additional locations, if such locations were determined
in the notice referred to in paragraph (a) of this Section 7.7;
(c) display in a prominent
place at the Company’s premises a copy of the notice published in a daily Hebrew newspaper, no later than three business
days following the day on which the Merger Proposal was submitted to the Registrar of Companies; and
(d) in accordance with
customary practice, of the Registrar of Companies, after Purchaser and the Company determine the intended date for the Closing,
Merger Sub and the Company shall request that the Registrar of Companies shall declare the Merger effective and issue the Certificate
of Merger upon such date as Purchaser and the Company shall have determined.
For the purposes of this
Section 7.7 only, the term “business day” shall have the meaning set forth in the Israeli Companies Regulations (Merger)
5760-2000 promulgated under the Companies Law.
7.8 Company’s
Shareholders Meeting.
(a) The Company shall take
all action necessary under applicable Laws to call, give notice of and hold the Company’s shareholders’ meeting for
purposes of seeking the Company’s shareholders’ approval for the Agreement, the transactions contemplated thereunder
and other related matters, such as approving the purchase of a run off insurance pending Closing. The Company shall use reasonable
best efforts to solicit from its shareholders proxies for voting on the matters to be voted on at the Company’s shareholders’
meeting as contemplated under this Agreement. The Company shall call, notice, convene, hold, conduct and solicit all proxies in
connection with the Company’s shareholders’ meeting in compliance with all applicable Laws, including the Companies
Law and the Charter Documents.
(b) The Company’s
board of Directors shall recommend without reservation that Company’s shareholders vote in favor of granting their approval;
and neither the Company’s board of directors, nor any committee thereof, shall withhold, withdraw, amend, modify, change
or propose or resolve to withhold, withdraw, amend, modify or change, in each case in a manner materially adverse to Purchaser,
the recommendation of the Company’s board of Directors that the Company’s shareholders vote in favor of granting their
approval.
(c) No later than three
days after the approval of the Merger by the Company’s shareholders at the Company’s shareholders’ meeting,
the Company shall (in accordance with Section 317(b) of the Companies Law) inform the Registrar of Companies regarding the Company’s
shareholders’ approval having been obtained.
7.9 Merger Sub Shareholders
Meeting. No later than three Business Days after the execution of this Agreement, Merger Sub shall (in accordance with Section
317(b) of the Companies Law and the regulations thereunder) inform the Registrar of Companies of such decision of Merger Sub’s
shareholder with respect to the Merger.
7.10 Obligations of
Merger Sub. Purchaser shall take all action necessary to cause Merger Sub to perform its obligations under this Agreement
and to consummate the transactions contemplated under this Agreement, upon the terms and subject to the conditions set forth in
this Agreement.
7.11 IIA Notice.
Promptly following the execution of this Agreement, but not later than the Closing, in each case in accordance with the Israeli
Encouragement of Research, Development and Technological Innovation in the Industry Law, 5744-1984, the Company shall submit a
written notice (the “IIA Notice”) to the IIA regarding the change in ownership of the Company effected as a
result of the Merger and the transactions contemplated herein.
ARTICLE
VIII
COVENANTS OF THE COMPANY
The Company
agrees that:
8.1 Reporting and Compliance
with Laws. From the date hereof through the Closing Date, the Company shall on behalf of the Company Group duly and timely
file all Tax Returns required to be filed with the applicable Taxing Authorities, pay any and all Taxes required by any Taxing
Authority and duly observe and conform in all material respects, to all applicable Laws and Orders.
8.2 Commercially Reasonable
Efforts to Obtain Consents. The Company shall use its commercially reasonable efforts to obtain each Company Consent set forth
on Schedule 8.2 and Governmental Approval as promptly as practicable hereafter.
8.3 Termination of
Investor Rights Agreement. Effective as of the Closing Date, the Company shall cause the termination of the Amended and Restated
Investors’ Rights Agreement, dated as of February 7, 2017, by and among the Company and the other parties thereto.
8.4 Company Shareholder
Approval. The Company will not solicit its shareholders for the Company Shareholder Approval until August 11, 2019, and the
Company Shareholder Approval shall have been obtained by no later than August 19, 2019.
ARTICLE
IX
COVENANTS OF ALL PARTIES HERETO
The parties hereto covenant
and agree that:
9.1 Commercially Reasonable
Efforts; Further Assurances; Governmental Consents.
(a) Subject to the terms
and conditions of this Agreement, each party (other than the Shareholders’ Representative) shall use its commercially reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable under applicable
Laws, or as reasonably requested by the other parties, to consummate and implement expeditiously each of the transactions contemplated
by this Agreement, including using reasonable best efforts to (i) obtain all necessary actions, nonactions, waivers, consents,
approvals and other authorizations from all applicable Authorities prior to the Effective Time, and (ii) avoid an Action or proceeding
by any Authority, and (iii) execute and deliver any additional instruments necessary to consummate the transactions contemplated
by this Agreement. The parties hereto (other than the Shareholders’ Representative) shall execute and deliver such other
documents, certificates, agreements and other writings and take such other actions as may be necessary or desirable in order to
consummate or implement expeditiously each of the transactions contemplated by this Agreement.
(b) Without limiting the
generality of Section 9.1(a), each party hereto (other than the Shareholders’ Representative) agrees to, and shall cause
its respective Affiliates to, make as promptly as practicable any filings or notifications required to be made by it under any
other applicable antitrust, competition, or trade regulation Law and to supply as promptly as practicable to the appropriate Authority
any additional information and documentary material that may be requested by such Authority pursuant to the applicable antitrust,
competition, or trade regulation Law.
(c) Subject to applicable
Law, each of the Company and Purchaser agrees to (i) cooperate and consult with the other regarding obtaining and making all notifications
and filings with Authorities, (ii) furnish to the other such information and assistance as the other may reasonably request in
connection with its preparation of any notifications or filings, (iii) keep the other apprised of the status of matters relating
to the completion of the transactions contemplated by this Agreement, including promptly furnishing the other with copies of notices
or other communications received by such party from, or given by such party to, any third party or any Authority with respect
to such transactions, (iv) permit the other party to review and incorporate the other party’s reasonable comments in any
communication to be given by it to any Authority with respect to any filings required to be made with, or action or nonactions,
waivers, expirations or terminations of waiting periods, clearances, consents or orders required to be obtained from, such Authority
in connection with execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement
and (v) to the extent reasonably practicable, consult with the other in advance of and not participate in any meeting or discussion
relating to the transactions contemplated by this Agreement, either in person or by telephone, with any Authority in connection
with the proposed transactions unless it gives the other party the opportunity to attend and observe; provided, however, in each
of clauses (iii) and (iv) above, that materials may be redacted (A) to remove references concerning the valuation of such party
and its Affiliates, (B) as necessary to comply with contractual arrangements or applicable Laws, and (C) as necessary to address
reasonable attorney-client or other privilege or confidentiality concerns.
9.2 Compliance with
SPAC Agreements. The Company and Purchaser shall comply with each of the agreements set forth on Schedule 9.2.
9.3 Cooperation with
SEC Statements.
(a) Notwithstanding anything
in this Agreement to the contrary, it is understood and agreed that as soon as reasonably practicable, but in no event later than
five (5) Business Days after receiving all necessary information relating to the Company from the Company for inclusion in the
Proxy Statement, the Purchaser shall prepare and file with the SEC the Proxy Statement, or such other form, statement, or report
as may be required under the United States federal securities laws (such Proxy Statement, or such other report or form, whether
in preliminary or definitive form, and any amendments or supplements thereto, the “SEC Statement”) for the
purpose of seeking the Purchaser Stockholder Approval. Each party (other than the Shareholders’ Representative) shall use
its reasonable best efforts to resolve all SEC comments on the SEC Statement as promptly as practicable after such filing, and
Purchaser and the Company shall take all action reasonably required (other than qualifying to do business in any jurisdiction
in which it is not now so qualified or filing a general consent to service of process) to be taken under any applicable state
securities Laws in connection with the issuance of Purchaser Common Stock pursuant to the terms of this Agreement. Each of Purchaser
and the Company shall furnish all information as may be reasonably requested by the other parties in connection with any such
action and the preparation, filing and distribution of the SEC Statement and any Other Filing. As promptly as practicable after
all SEC comments on the SEC Statement shall have been resolved, Purchaser shall use its reasonable best efforts to cause the SEC
Statement to be mailed to its stockholders as of the record date for the Purchaser Stockholder Meeting.
(b) The Company shall provide
Purchaser with all reasonable information concerning the business of the Company Group and the management, operations and financial
condition of the Company Group as is required by the SEC for inclusion in the SEC Statements (“Company Information”),
including, all financial statements required by relevant securities laws and regulations (the “Required Company Financial
Statements”), which shall be prepared under such accounting principles and for such periods as required by the forms,
rules and regulations of the SEC or as requested by the SEC in connection with its review of the SEC Statement or any Other Filing.
Subject to the Company’s review and approval of any SEC Statement including Company Information and the consent of the Company’s
auditor to the inclusion of the Required Company Financial Statements in any SEC Statement (in each case, such approval or consent
not to be unreasonably withheld, conditioned or delayed), the Company acknowledges and agrees that Company Information (including
the Required Company Financial Statements), or summaries thereof or extracts therefrom, may be included in the SEC Statement and
any other filings required under the Exchange Act, Securities Act or any other United States federal, foreign or blue sky laws
(“Other Filings”). In connection therewith, each of Purchaser and the Company shall instruct their respective
employees, counsel, financial advisors, auditors and other authorized representatives to reasonably cooperate with the other parties
and their respective employees, counsel, financial advisors, auditors and other authorized representatives as relevant if required
to achieve the foregoing. No filing of, or amendment or supplement to, the SEC Statement or any Other Filing will be made (in
each case including documents incorporated by reference therein) by either Purchaser or the Company without providing the other
with a reasonable opportunity to review and comment thereon. Notwithstanding the foregoing, neither the Company nor the Purchaser
will file any SEC Statement or Other Filings without the other party’s approval (such approval not to be unreasonably withheld,
conditioned or delayed). Purchaser and the Company will advise the other parties hereto promptly after it receives any oral or
written request by the SEC for amendment of the SEC Statement or Other Filings, as applicable, or comments thereon and responses
thereto or requests by the SEC for additional information and each party will promptly provide the other with copies of any written
communication between it or any of its representatives, on the one hand, and the SEC, any state securities commission or their
respective staffs, on the other hand, with respect to the SEC Statement or the Merger. Purchaser and the Company shall use their
respective reasonable best efforts, after consultation with each other, to resolve all such requests or comments with respect
to the SEC Statement or Other Filings as promptly as reasonably practicable after receipt thereof. Without limiting the generality
of the foregoing, each of Purchaser and the Company shall cooperate with each other in the preparation of each of SEC Statement
and Other Filing and each of Purchaser and the Company shall furnish the other with all information concerning it and its Affiliates
as the requesting party (after consulting with counsel) may deem reasonably necessary or advisable in connection with the preparation
of the SEC Statement or Other Filings, as applicable. Purchaser and the Company shall notify each other promptly of the time when
the SEC Statement shall be declared definitive, of the issuance of any stop order or suspension of the qualification of the Purchaser
Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction, or of the receipt of any comments
from the SEC or the staff of the SEC and of any request by the SEC or the staff of the SEC for amendments or supplements to the
SEC Statement, Other Filings or for additional information.
(c) As of the date of the
filing of any SEC Statement with the SEC or Other Filing, none of the Company Information, Required Company Financial Statements
or other financial information supplied by the Company in connection with the SEC Statement or Other Filing shall contain any
untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to
make the statements therein in light of the circumstances under which they were made, not misleading.
(d) If at any time prior
to the Effective Time any information relating to Purchaser or the Company or any of their respective Affiliates, directors, officers
or stockholders, should be discovered by Purchaser or the Company which should be set forth in an amendment or supplement to either
the SEC Statement or Other Filings, so that any such document would not include any misstatement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of the circumstances under which they are made, not
misleading, the party that discovers such information shall promptly notify the other parties hereto and an appropriate amendment
or supplement describing such information shall be promptly filed with the SEC and, to the extent required by Law, disseminated
to Purchaser’s stockholders.
9.4 Confidentiality.
Except as necessary to complete the Proxy Statement or any other SEC Statements or Other Filings, the Company, on the one hand,
and Purchaser and Merger Sub, on the other hand, shall hold and shall cause their respective representatives to hold in strict
confidence, unless compelled to disclose by judicial or administrative process or by other requirements of Law, all documents
and information concerning the other party furnished to it by such other party or its representatives in connection with the transactions
contemplated by this Agreement (except to the extent that such information can be shown to have been (a) previously known by the
party to which it was furnished, (b) in the public domain through no fault of such party or (c) later lawfully acquired from other
sources, which source is not the agent of the other party, by the party to which it was furnished), and each party shall not release
or disclose such information to any other person, except its representatives in connection with this Agreement. In the event that
any party believes that it is required to disclose any such confidential information pursuant to applicable Laws, to the extent
legally permissible, such party shall give timely written notice to the other party so that such party may have an opportunity
to obtain a protective order or other appropriate relief. Each party shall be deemed to have satisfied its obligations to hold
confidential information concerning or supplied by the other party if it exercises the same care as it takes to preserve confidentiality
for its own similar information. The parties acknowledge that some previously confidential information will be required to be
disclosed in the Proxy Statement and any other SEC Statements and Other Filings. Notwithstanding anything in this Agreement to
the contrary, following the Closing, the Shareholders’ Representative shall be permitted to disclose information as required
by Law or to employees, advisors, agents or consultants of the Shareholders’ Representative and to the Company Securityholders,
in each case who have a need to know such information, provided that such persons are subject to confidentiality obligations with
respect thereto.
9.5 Directors’
and Officers’ Indemnification and Liability Insurance.
(a) All rights to indemnification
for acts or omissions occurring through the Closing Date now existing in favor of the current directors and officers of the Company
and the Purchaser as provided in their respective organizational documents or in any indemnification agreements shall survive
the applicable Merger and shall continue in full force and effect in accordance with their terms.
(b) Prior to the Closing
Date, Purchaser shall purchase a directors and officers tail liability insurance policy, with respect to claims arising from facts
and events that occurred prior to the Closing Date.
(c) The provisions of this
Section 9.5 are intended to be for the benefit of, and shall be enforceable by, each Person who will have been a director
or officer of the Company or the Purchaser for all periods ending on or before the Closing Date and may not be changed with respect
to any officer or director without his or her written consent.
(d) Prior to the Effective
Time, the Company shall be permitted to obtain and fully pay the premium for a seven year prepaid “tail” policy for
the extension of the directors’ and officers’ liability coverage of the Company’s existing directors’
and officers’ liability insurance policies, for claims reporting or discovery period of seven years from and after the Effective
Time, on terms and conditions providing coverage retentions, limits and other material terms substantially equivalent to the current
policies of directors’ and officers’ liability insurance maintained by the Company with respect to matters arising
on or before the Effective Time, covering without limitation the transactions contemplated hereby. After the Effective Time, Purchaser
shall cause such “tail” policy to be maintained in full force and effect, for its full term, and shall honor all of
its obligations thereunder, and no party shall have any other obligation to purchase or pay for any insurance hereunder.
9.6 Execution of Offer
Letters with Senior Management. The Company will identify members of the senior management team and will execute an offer
letter or other employment related agreement with each such senior management member, in such form and terms as agreed upon by
the Company.
9.7 Repayment of Purchaser
Indebtedness and other Liabilities. Prior to or concurrent with the Closing, Purchaser shall repay and extinguish all expenses,
Indebtedness and other liabilities without any further Liability to the Company or Purchaser, and shall deliver, at least five
(5) Business Days prior to the Closing Date, executed waivers, payoff letters or final invoices, as applicable, from each vendor,
lender, creditor, noteholder or other counterparty to which such expenses, Indebtedness or other liabilities, including those
liabilities required to be set forth on Schedule 6.17.
9.8 Equity Financing.
(a) Purchaser and the Company
shall use their commercially reasonable efforts to cause the immediately available funds contained in the Trust Account (net of
any Purchaser Redemption Amount) available for release to Purchaser immediately following the Closing, plus the immediately available
funds contained in the New Investment Escrow Account available for release to Purchaser immediately following the Closing, if
any, that have been deposited into the New Investment Escrow Account pursuant to the Third Party Purchase Agreements to equal
or exceed Thirty Million Dollars ($30,000,000).
(b) Purchaser and the Company
shall use their commercially reasonable efforts to cause the immediately available funds contained in the New Investment Escrow
Account available for release to Purchaser immediately following the Closing that have been deposited into the New Investment
Escrow Account pursuant to the Company Securityholder Purchase Agreements to equal or exceed Twenty Million Dollars ($20,000,000).
9.9 Certain Tax Matters.
Purchaser and the Company shall use its reasonable best efforts to cause the Merger to qualify as a “reorganization”
within the meaning of Section 368(a) of the Code. Neither Purchaser nor the Company shall take any action, or fail to take any
action, that could reasonably be expected to cause the Merger to fail to qualify as a “reorganization” within the
meaning of Section 368(a) of the Code. Purchaser and the Company intend to report and, except to the extent otherwise required
by a change in Law, shall report, for U.S. federal income tax purposes, the Merger as a “reorganization” within the
meaning of Section 368(a) of the Code, unless otherwise required by applicable Law.
9.10 Founder Share
Cancellation. If the Aggregate Investment Amount is less than Seventy Million Dollars ($70,000,000), Chardan Investments LLC
agrees to forfeit a number of whole shares of Purchaser Common Stock equal to: (a) Five Hundred Thousand (500,000) shares of Purchaser
Common Stock; multiplied by (b) the quotient of: (i) the absolute value of the difference between Seventy Million Dollars ($70,000,000)
minus the Aggregate Investment Amount; divided by (ii) Twenty Million Dollars ($20,000,000), rounded to the nearest whole share;
provided, however, that in no event will Chardan Investments LLC be required to forfeit more than Five Hundred Thousand
(500,000) shares of Purchaser Common Stock pursuant to this Section 9.10.
9.11 Equity Incentive
Plan. Prior to the Closing, the Company shall amend the Equity Incentive Plan (or adopt a new equity incentive plan having
the same effect that will be assumed by Purchaser as of the Effective Time), to include: (a) an “evergreen” provision
that will provide for an automatic increase on an annual basis in the number of shares available for issuance under the Equity
Incentive Plan (or such new equity incentive plan) equal to an amount as determined by the compensation committee of the Company,
not to exceed on an annual basis four percent (4%) of the total number of shares of Purchaser Common Stock then-issued and outstanding;
and (b) such other terms are customary for a company whose securities are traded on the NYSE American or any similar exchange
in the United States of America.
ARTICLE
X
CONDITIONS TO CLOSING
10.1 Condition to the
Obligations of the Parties. The obligations of all of the parties to consummate the Closing are subject to the satisfaction
of all the following conditions:
(a) No provisions of any
applicable Law, and no Order shall restrain or prohibit or impose any condition on Closing;
(b) At least fifty (50)
days shall have elapsed after the filing of the Merger Proposal with the Registrar of Companies and at least thirty (30) days
shall have elapsed after the approval of the Merger by the shareholders of each of the Company and Merger Sub, and the Certificate
of Merger shall have been received from the Registrar of Companies;
(c) Any Governmental Approvals
shall have been obtained;
(d) There shall not be
any Action brought by any governmental Authority to enjoin or otherwise restrict the consummation of the Closing;
(e) The Purchaser’s
initial listing application with the NYSE American in connection with the transactions contemplated hereby shall have been approved,
immediately following the Closing Purchaser shall satisfy any applicable initial and continuing listing requirements of the NYSE
American and Purchaser shall not have received any notice of non-compliance therewith, and the Purchaser Common Stock shall have
been approved for listing on the NYSE American, subject to completion of the Merger; and
(f) Each of the Purchaser
Stockholder Approval and the Company Shareholder Approval shall have been obtained.
10.2 Conditions to
Obligations of Purchaser and Merger Sub. The obligation of Purchaser and Merger Sub to consummate the Closing is subject to
the satisfaction, or the waiver at Purchaser’s sole and absolute discretion, of all the following further conditions:
(a) The Company shall have
duly performed in all material respects all of its obligations hereunder required to be performed by it at or prior to the Closing
Date.
(b) All of the representations
and warranties of the Company contained in this Agreement and in any certificate delivered by the Company pursuant hereto, disregarding
all qualifications and exceptions contained therein relating to materiality or Material Adverse Effect, shall: (i) be true and
correct at and as of the date of this Agreement, or, (ii) if otherwise specified, when made or when deemed to have been made,
and (iii) be true and correct as of the Closing Date, except in the case of (i), (ii) and (iii) for any inaccuracies in such representations
and warranties which would not in the aggregate reasonably be expected to have a Material Adverse Effect.
(c) 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.
(d) Purchaser shall have
received a certificate signed by the Chief Executive Officer and Chief Financial Officer of the Company to the effect set forth
in clauses (a) through (c) of this Section 10.2 (the “Company Certificate”).
(e) Purchaser shall have
received the Financial Statements.
(f) Purchaser shall have
received (i) a copy of the Charter Documents certified as of a recent date by the Secretary of State or similar official of its
jurisdictions of organization, (ii) copies of resolutions duly adopted by the board of directors of the Company and by vote or
consent of the Shareholders authorizing this Agreement, the Additional Agreements and the transactions contemplated hereby and
thereby, and (iii) a certificate of the Secretary of the Company certifying as to signatures of the officer(s) executing this
Agreement and any certificate or document to be delivered pursuant hereto, together with evidence of the incumbency of such Secretary.
(g) Each of the Voting
Agreement, Registration Rights Agreement and Escrow Agreement shall have been duly executed and delivered by each party thereto
other than Purchaser.
(h) The immediately available
funds contained in the New Investment Escrow Account available for release to Purchaser immediately following the Closing that
have been deposited into the New Investment Escrow Account pursuant to the Company Securityholder Purchase Agreements shall equal
or exceed Twenty Million Dollars ($20,000,000).
10.3 Conditions to
Obligations of the Company. The obligations of the Company to consummate the Closing is subject to the satisfaction, or the
waiver at the Company’s discretion, of all of the following further conditions:
(a) (i) The Purchaser
and Merger Sub shall each have performed in all material respects all of its obligations hereunder required to be performed by
it at or prior to the Closing Date, (ii) the representations and warranties of Purchaser and Merger Sub contained in this Agreement,
and in any certificate or other writing delivered by the Purchaser pursuant hereto, disregarding all qualifications and expectations
contained therein relating to materiality shall be true and correct in all respects at and as of the Closing Date, as if made
at and as of such date, except for any inaccuracies in such representations and warranties which would not in the aggregate reasonably
be expected to have a material adverse effect on the Purchaser or on Purchaser’s ability to consummate the transactions
contemplated by this Agreement and the Additional Agreements, and (iii) the Company shall have received a certificate signed by
an authorized officer of the Purchaser to the foregoing effect.
(b) Purchaser shall have
executed and delivered to the Company a copy of each Additional Agreement to which it is a party.
(c) The Shareholder Designees
shall have been appointed to the board of directors of the Purchaser, effective as of the Closing.
(d) The Aggregate Investment
Amount shall equal or exceed Fifty Million Dollars ($50,000,000) in the aggregate.
(e) Purchaser shall have
delivered to the Company executed payoff letters for all Indebtedness, expenses and other liabilities of Purchaser that remain
unpaid as of immediately prior to the Closing.
(f) The aggregate amount
of Indebtedness, expenses and other liabilities of Purchaser that remain unpaid as of immediately prior to the Closing is less
than $1,000,000.
(g) The daily volume weighted
average price of a share of Purchaser Common Stock for the 10 trading days immediately preceding the Closing Date shall equal
at least Nine Dollars and Fifty Cents ($9.50).
(h) The immediately available
funds contained in the New Investment Escrow Account available for release to Purchaser immediately following the Closing that
have been deposited into the New Investment Escrow Account pursuant to the Company Securityholder Purchase Agreements shall equal
or exceed Twenty Million Dollars ($20,000,000).
ARTICLE
XI
INDEMNIFICATION
11.1 Indemnification
of Purchaser. From and after the Closing, the Escrow Participants hereby agree to indemnify and hold harmless Purchaser against
and in respect of any actual and direct out-of-pocket loss, cost, payment, demand, penalty, forfeiture, expense, liability, judgment,
deficiency or damage (including actual costs of investigation and attorneys’ fees and other costs and expenses) (all of
the foregoing collectively, “Losses”) incurred or sustained by Purchaser as a result of: (a) any breach or
inaccuracy of any of the representations, warranties set forth in Article V (as modified by the Schedules) or in the Company Certificate,
in each case as of the Closing Date, and (b) any breach or nonfulfillment of any covenants of the Company contained in this Agreement
to be performed prior to the Closing Date. Notwithstanding anything in this Agreement to the contrary, the maximum liability of
the Escrow Participants under this Agreement, including this Article XI, or otherwise in connection with the transactions contemplated
by this Agreement shall in no event exceed an amount equal to: (i) the Escrow Share Value, multiplied by (ii) the Escrow Shares
(the “Indemnifiable Loss Limit”). The Purchaser shall not be entitled to indemnification pursuant to this Section
11.1 unless and until the aggregate amount of Losses to Purchaser equals at least $1,246,875 (the “Basket”),
at which time, subject to the Indemnifiable Loss Limit, the Purchaser shall be entitled to indemnification for any Losses above
the Basket, less $124,687.50 per Loss. The Escrow Participants shall have no liability or obligation to indemnify any Purchaser
or any other Indemnified Party under this Agreement with respect to the breach or inaccuracy of any representation, warranty,
covenant or agreement based on any matter, fact or circumstance known to Purchaser or any of its representatives or disclosed
in the information set out in any Schedule to this Agreement.
11.2 Procedure.
The following shall apply with respect to all claims by the Purchaser (an “Indemnified Party”) for indemnification
pursuant to this Article XI:
(a) An Indemnified Party
shall give the Shareholders’ Representative prompt notice (an “Indemnification Notice”) of any third-party
action with respect to which such Indemnified Party seeks indemnification pursuant to Section 11.1 or 11.2 (a “Third-Party
Claim”), which shall describe in reasonable detail the Loss that has been or may be suffered by the Indemnified Party.
The failure to give the Indemnification Notice shall not impair any of the rights or benefits of such Indemnified Party under
Sections 11.1 or 11.2, except to the extent such failure prejudices the ability of the Escrow Participants (any of such parties,
“Indemnifying Parties”) to defend such claim or increases the amount of such liability.
(b) In the case of any
Third-Party Claims as to which indemnification is sought by any Indemnified Party, such Indemnified Party shall be entitled, at
the sole expense and liability of the Escrow Participants, to exercise full control of the defense, compromise or settlement of
any Third-Party Claim unless the Shareholders’ Representative, within a reasonable time after the giving of an Indemnification
Notice by the Indemnified Party (but in any event within twenty (20) Business Days thereafter), shall notify such Indemnified
Party in writing of the intention of the Shareholders’ Representative to assume the defense thereof.
(c) If the Indemnifying
Parties assume the defense of any such Third-Party Claim pursuant to Section 11.3(b), then the Indemnified Party shall cooperate
with the Indemnifying Parties in any manner reasonably requested in connection with the defense, and the Indemnified Party shall
have the right to be kept fully informed by the Indemnifying Parties and their legal counsel with respect to the status of any
legal proceedings, to the extent not inconsistent with the preservation of attorney-client or work product privilege. If the Indemnifying
Parties so assume the defense of any such Third-Party Claim the Indemnified Party shall have the right to employ separate counsel
and to participate in (but not control) the defense, compromise, or settlement thereof, but the fees and expenses of such counsel
employed by the Indemnified Party shall be at the expense of such Indemnified Party unless (i) the Indemnifying Parties have agreed
to pay such fees and expenses, or (ii) the named parties to any such Third-Party Claim (including any impleaded parties) include
an Indemnified Party and an Indemnifying Party and such Indemnified Party shall have been advised by its counsel that there may
be a conflict of interest between such Indemnified Party and the Indemnifying Parties in the conduct of the defense thereof, and
in any such case the reasonable documented out-of-pocket fees and expenses of one separate counsel of the Indemnified Party shall
be borne by the Indemnifying Parties subject to the limitations set forth in this Article XI.
(d) If the Indemnifying
Parties elect to assume the defense of any Third-Party Claim pursuant to Section 11.3(b), the Indemnified Party shall not pay,
or permit to be paid, any part of any claim or demand arising from such asserted liability unless the Indemnifying Parties withdraw
from the defense of such Third-Party Claim, or unless a judgment is entered against the Indemnified Party for such liability by
an Authority of competent jurisdiction. If the Indemnifying Parties do not elect to defend, or if, after commencing or undertaking
any such defense, the Indemnifying Parties withdraw such defense, the Indemnified Party shall have the right to undertake the
defense or settlement thereof, at the Indemnifying Parties’ expense subject to the limitations set forth in this Article
XI. In the event the Indemnified Party retains control of the Third-Party Claim, the Indemnified Party will not settle the subject
claim without the prior written consent of the Indemnifying Party, which consent will not be unreasonably withheld or delayed.
(e) If the Indemnified
Party undertakes the defense of any such Third-Party Claim pursuant to Section 11.1 or 11.2 and proposes to settle the same prior
to a final judgment thereon or to forgo appeal with respect thereto, then the Indemnified Party shall give the Indemnifying Parties
prompt written notice thereof and the Indemnifying Parties shall have the right to participate in the settlement, assume or reassume
the defense thereof or prosecute such appeal, in each case at the Indemnifying Parties’ expense. The Indemnifying Parties
shall not, without the prior written consent of such Indemnified Party settle or compromise or consent to entry of any judgment
with respect to any such Third-Party Claim (i) in which any relief other than the payment of money damages is or may be sought
against such Indemnified Party, (ii) in which such Third-Party Claim could be reasonably expected to impose or create a monetary
liability on the part of the Indemnified Party (such as an increase in the Indemnified Party’s income Tax) other than the
monetary claim of the third party in such Third-Party Claim being paid pursuant to such settlement or judgment, or (iii) which
does not include as an unconditional term thereof the giving by the claimant, person conducting such investigation or initiating
such hearing, plaintiff or petitioner to such Indemnified Party of a release from all liability with respect to such Third-Party
Claim and all other actions (known or unknown) arising or which might arise out of the same facts.
(f) Following the Closing,
the disinterested members of the board of directors of the Purchaser shall have the authority to institute and prosecute any claims
for indemnification hereunder in good faith on behalf of the Purchaser to enforce the terms of this Agreement.
11.3 Escrow of Escrow
Shares by Escrow Participants. The Company hereby authorizes the Purchaser to deliver the Escrow Shares into escrow (the “Escrow
Fund”) pursuant to the Escrow Agreement. For purposes of this Article XI, the Escrow Shares are valued at the greater
of: (i) $10.00 per share; or (ii) the Purchaser Redemption Amount (the “Escrow Share Value”).
(a) Escrow Shares. Payment
of Dividends; Voting. Any dividends, interest payments, or other distributions of any kind made in respect of the Escrow Shares
will be delivered promptly to the Escrow Agent to be held in escrow (the “Escrow Income”). Each Escrow Participant
shall be entitled to vote such Escrow Participant’s Escrow Pro Rata Portion of the Escrow Shares on any matters to come
before the shareholders of the Purchaser. It is intended that for U.S. federal income tax purposes that while the Escrow Shares
are held by the Escrow Agent, the Escrow Participants shall be treated owners of the Escrow Shares, and to the extent required
by Applicable Law, the Escrow Agent shall report in a manner consistent with such treatment.
(b) Distribution of
Escrow Shares. At the times provided for in Section 11.3(d), the Escrow Shares shall be distributed to each Escrow Participant
in accordance with such Escrow Participant’s Escrow Pro Rata Portion. The Purchaser will take such action as may be necessary
to cause such certificates to be issued in the names of the appropriate persons. Certificates representing Escrow Shares so issued
that are subject to resale restrictions under applicable securities laws will bear a legend to that effect. No fractional shares
shall be released and delivered from the Escrow Fund and all fractional shares shall be rounded to the nearest whole share.
(c) Assignability.
No Escrow Shares or any beneficial interest therein may be pledged, sold, assigned or transferred, including by operation of law,
by the Escrow Participants or be taken or reached by any legal or equitable process in satisfaction of any debt or other liability
of the Escrow Participants, prior to the delivery to such Escrow Participants of the Escrow Fund by the Escrow Agent as provided
herein.
(d) Release from Escrow
Fund. As soon as practicable, but in no event later than five (5) Business Days, following expiration of the Survival Period
(the “Release Date”), the Escrow Shares will be released from escrow to the Escrow Participants (in accordance
with such Escrow Participant’s Escrow Pro Rata Portion) less the number of Escrow Shares (at an assumed value equal to the
Escrow Share Value per Escrow Share) reasonably necessary to serve as security for Losses set forth in any Indemnification Notice
delivered by the Purchaser prior to the expiration of the Survival Period that remain pending and unresolved. Prior to the Release
Date, the Shareholders’ Representative and the Purchaser shall jointly issue to the Escrow Agent a certificate executed
by each of them instructing the Escrow Agent to release such number of Escrow Shares (in accordance with such Escrow Participant’s
Escrow Pro Rata Portion) determined in accordance with this Section 11.4(d). Promptly, but in no event later than five (5) Business
Days, following the resolution in accordance with the provisions of this Article XI of any claim(s) for indemnification that remain
unresolved as of the Release Date the Shareholders’ Representative and the Purchaser shall jointly issue to the Escrow Agent
a certificate executed by each of them instructing the Escrow Agent to release to each Escrow Participant (in accordance with
such Escrow Participant’s Escrow Pro Rata Portion) the number of Escrow Shares retained in escrow following the resolution
of such claim(s) and not released to Purchaser.
11.4 Payment of Indemnification.
In the event that Purchaser is entitled to any indemnification for any Losses pursuant to this Agreement or otherwise in connection
with the transactions contemplated by this Agreement, the Purchaser’s sole and exclusive remedy for such Losses shall be
the recovery of a number of shares of Purchaser Common Stock from the Escrow Shares having a value equal to the Losses that have
been finally determined to be owing to the Purchaser in accordance with this Article XI (at an assumed value equal to the Escrow
Share Value per Escrow Share), in each case, subject to the limitations set forth in this Article XI. Any payments to Purchaser
from the Escrow Shares will be treated as a reduction in the number of shares of Purchaser Common Stock issued to the Escrow Participants
for U.S. federal income tax purposes.
11.5 Insurance.
In calculating amounts of Losses payable to an Indemnified Party hereunder, the amount of any indemnified Losses shall be determined
net of amounts actually recovered under any insurance policy or other third party reimbursement actually received.
11.6 Survival of Indemnification
Rights. The representations and warranties of the Company shall survive until six (6) months (the “Survival Period”)
following the Closing. The covenants of the Company contained in this Agreement to be performed prior to Closing shall expire
and be of no further force or effect as of the Closing, provided, that claims for breach or nonfulfillment thereof shall survive
until the expiration of the Survival Period. The indemnification to which any Indemnified Party is entitled from the Indemnifying
Parties pursuant to Section 11.1 for Losses shall be effective so long as it is asserted prior to the expiration of the Survival
Period; provided, that in the event that any Indemnification Notice shall have been given in accordance with the provisions of
this Agreement prior to the expiration of the Survival Period and such claim has not been finally resolved by the expiration of
the Survival Period, the representations, warranties, covenants, agreements or obligations that are the subject of such Indemnifications
Notice shall survive solely for purposes of resolving such claim until such matters are finally resolved. The parties acknowledge
that the time periods set forth in this Section 11.6 for the assertion of claims under this Agreement are the result of arms’-length
negotiation among the parties and that they intend for the time periods to be enforced as agreed by the parties without regard
to the applicable statute of limitations with respect to such matters and that the 20 year statute of limitations contemplated
by Title 10 of Section 8106(c) of the Delaware Code shall not apply to this Agreement.
11.7 Sole and Exclusive
Remedy. The remedies provided in this Article XI and the rights to enforce the Additional Agreements in accordance with their
terms shall be deemed the sole and exclusive remedies of the Indemnified Parties, from and after the Closing Date, with respect
to any and all claims arising out of or related to this Agreement or in connection with the transactions contemplated hereby,
except nothing in this Agreement (i) will limit the parties’ rights to seek injunctive relief or other equitable remedies,
(ii) would prevent Purchaser from bringing an action for fraud (with scienter) against the Person who committed such Fraud (with
scienter) or (iv) limit the right of any Person to pursue remedies under any Additional Agreement against the parties thereto.
ARTICLE
XII
DISPUTE RESOLUTION
12.1 Arbitration.
(a) The parties shall promptly
submit any dispute, claim, or controversy arising out of or relating to this Agreement (including with respect to the meaning,
effect, validity, termination, interpretation, performance, or enforcement of this Agreement) or any alleged breach thereof (including
any action in tort, contract, equity, or otherwise), to binding arbitration before one arbitrator (the “Arbitrator”).
Binding arbitration shall be the sole means of resolving any dispute, claim, or controversy arising out of or relating to this
Agreement (including with respect to the meaning, effect, validity, termination, interpretation, performance or enforcement of
this Agreement) or any alleged breach thereof (including any claim in tort, contract, equity, or otherwise).
(b) If the parties cannot
agree upon the Arbitrator, the Arbitrator shall be selected by the New York, New York chapter head of the American Arbitration
Association upon the written request of any Party. The Arbitrator shall be selected within thirty (30) days of the written request
of any party.
(c) Except with respect
to matters set forth in Article II that relate to the effectuation of the Merger, which are exclusively governed by the Law of
the State of Israel, the laws of the State of Delaware shall apply to any arbitration hereunder. In any arbitration hereunder,
this Agreement shall be governed by the laws of the State of Delaware applicable to a contract negotiated, signed, and wholly
to be performed in the State of Delaware, which laws the Arbitrator shall apply in rendering his decision. The Arbitrator shall
issue a written decision, setting forth findings of fact and conclusions of law, within sixty (60) days after he shall have been
selected. The Arbitrator shall have no authority to award punitive or other exemplary damages.
(d) The arbitration shall
be held in New York, New York in accordance with and under the then-current provisions of the rules of the American Arbitration
Association, except as otherwise provided herein.
(e) On application to the
Arbitrator, any party shall have rights to discovery to the same extent as would be provided under the Federal Rules of Civil
Procedure, and the Federal Rules of Evidence shall apply to any arbitration under this Agreement; provided, however, that the
Arbitrator shall limit any discovery or evidence such that his decision shall be rendered within the period referred to in Section
12.1(c).
(f) The Arbitrator may,
at his discretion and at the expense of the party who will bear the cost of the arbitration, employ experts to assist him in his
determinations.
(g) The costs of the arbitration
proceeding and any proceeding in court to confirm any arbitration award or to obtain relief as provided in Section 12.1(h), as
applicable (including actual attorneys’ fees and costs), shall be borne by the unsuccessful party (if the Shareholders’
Representative, then solely on behalf of the Company Securityholders) and shall be awarded as part of the Arbitrator’s decision,
unless the Arbitrator shall otherwise allocate such costs in such decision. The determination of the Arbitrator shall be final
and binding upon the parties and not subject to appeal.
(h) Any judgment upon any
award rendered by the Arbitrator may be entered in and enforced by any court of competent jurisdiction. The parties expressly
consent to the non-exclusive jurisdiction of the courts (Federal and state) in Delaware, to enforce any award of the Arbitrator
or to render any provisional, temporary, or injunctive relief in connection with or in aid of the Arbitration. The parties expressly
consent to the personal and subject matter jurisdiction of the Arbitrator to arbitrate any and all matters to be submitted to
arbitration hereunder. None of the parties hereto shall challenge any arbitration hereunder on the grounds that any party necessary
to such arbitration (including the parties hereto) shall have been absent from such arbitration for any reason, including that
such party shall have been the subject of any bankruptcy, reorganization, or insolvency proceeding.
(i) The parties (in the
case of the Shareholders’ Representative, solely on behalf of the Company Securityholders) shall indemnify the Arbitrator
and any experts employed by the Arbitrator and hold them harmless from and against any claim or demand arising out of any arbitration
under this Agreement or any agreement contemplated hereby, unless resulting from the gross negligence or willful misconduct of
the person indemnified.
(j) Notwithstanding anything
herein to the contrary, the parties agree that irreparable damage would occur if any of the provisions of this Agreement were
not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall
be entitled to seek an injunction or injunctions, specific performance and other equitable relief to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this Agreement. The parties expressly consent to the non-exclusive
jurisdiction of the courts (Federal and state) in Delaware to render such relief and to enforce specifically the terms and provisions
of this Agreement.
12.2 Waiver of Jury
Trial; Exemplary Damages.
(a) THE PARTIES TO THIS
AGREEMENT HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVE ANY RIGHT EACH SUCH PARTY MAY HAVE TO TRIAL BY JURY IN ANY ACTION
OF ANY KIND OR NATURE, IN ANY COURT IN WHICH AN ACTION MAY BE COMMENCED, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT.
NO PARTY SHALL BE AWARDED PUNITIVE OR OTHER EXEMPLARY DAMAGES RESPECTING ANY DISPUTE ARISING UNDER THIS AGREEMENT.
(b) Each of the parties
to this Agreement acknowledge that each has been represented in connection with the signing of this waiver by independent legal
counsel selected by the respective party and that such party has discussed the legal consequences and import of this waiver with
legal counsel. Each of the parties to this Agreement further acknowledge that each has read and understands the meaning of this
waiver and grants this waiver knowingly, voluntarily, without duress and only after consideration of the consequences of this
waiver with legal counsel.
ARTICLE
XIII
TERMINATION
13.1 Termination Without
Default.
(a) In the event that the
Closing of the transactions contemplated hereunder has not occurred by October 31, 2019 (the “Outside Closing Date”);
provided, that if the SEC has not declared the Proxy Statement effective on or prior to September 30, 2019, the Outside Closing
Date shall be automatically extended to November 30, 2019, and no material breach of this Agreement by the party (i.e., the Purchaser
or the Merger Sub, on one hand, or the Company, on the other hand) seeking to terminate this Agreement shall have occurred or
have been made (as provided in Section 13.2 hereof), Purchaser or the Company shall have the right, at its sole option, to terminate
this Agreement without liability to the other party. Such right may be exercised by Purchaser or the Company, as the case may
be, giving written notice to the other at any time after the Outside Closing Date.
(b) In the event an Authority
shall have issued an Order, having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger, which
Order is final and non-appealable, Purchaser or the Company shall have the right, at its sole option, to terminate this Agreement
without liability to the other party.
13.2 Termination Upon
Default.
(a) The Purchaser may terminate
this Agreement by giving notice to the Company on or prior to the Closing Date, without prejudice to any rights or obligations
Purchaser may have, if: (i) the Company shall have breached any representation, warranty, agreement or covenant contained herein
to be performed on or prior to the Closing Date, which has rendered the satisfaction of any of the conditions set forth in Section
10.2 impossible; and (ii) such breach shall not be cured by the earlier of the Outside Closing Date and thirty (30) days following
receipt by the Company of a written notice from Purchaser describing in reasonable detail the nature of such breach.
(b) The Company may terminate
this Agreement by giving notice to Purchaser, without prejudice to any rights or obligations the Company may have, if: (i) Purchaser
shall have breached any of its covenants, agreements, representations, and warranties contained herein to be performed on or prior
to the Closing Date, which has rendered the satisfaction of any of the conditions set forth in Section 10.3 impossible; and (ii)
such breach shall not be cured by the earlier of the Outside Closing Date and thirty (30) days following receipt by Purchaser
of a written notice from the Company describing in reasonable detail the nature of such breach.
13.3 Effect of Termination.
If this Agreement is terminated pursuant to this Article XIII, this Agreement shall become void and of no effect without liability
of any party (or any shareholder, director, officer, employee, Affiliate, agent, consultant or representative of such party) to
the other party hereto; provided that, if such termination shall result from the willful breach by a party of its covenants and
agreements hereunder or fraud, such party shall be fully liable for any and all liabilities and damages incurred or suffered by
the other party as a result of such failure. The provisions of Section 9.4, Article XII, this Section 13.3 and Article XIV shall
survive any termination hereof pursuant to this Article XIII.
ARTICLE
XIV
MISCELLANEOUS
14.1 Notices. Any
notice hereunder shall be sent in writing, addressed as specified below, and shall be deemed given: (a) if by hand or recognized
courier service, by 4:00PM on a business day, addressee’s day and time, on the date of delivery, and otherwise on the first
business day after such delivery; (b) if by fax, on the date that transmission is confirmed electronically, if by 4:00PM on a
business day, addressee’s day and time, and otherwise on the first business day after the date of such confirmation; (c)
if email, on the date of transmission; or (d) five days after mailing by certified or registered mail, return receipt requested.
Notices shall be addressed to the respective parties as follows (excluding telephone numbers, which are for convenience only),
or to such other address as a party shall specify to the others in accordance with these notice provisions:
if to the Company
(or, following the Closing, the Surviving Corporation), to:
BiomX Ltd.
7 Sapir St.
Ness Ziona,
Israel, 7414002
Attn: Jonathan Solomon
Fax: TBD
e-mail: jonathans@biomx.com
with a copy to (which shall not constitute
notice):
Mayer Brown LLP
1221 Avenue of the Americas
New York, NY 10020
United States of America
Attn.: Anna T. Pinedo
Phyllis G. Korff
Email: APinedo@mayerbrown.com
PKorff@mayerbrown.com
and a copy to (which shall not constitute
notice):
Shy S. Baranov, Adv.
Zysman, Aharoni, Gayer & Co.
41-45 Rothschild Blvd., Beit Zion
Tel Aviv, 6578401, Israel
Email: sbaranov@zag-sw.com
if to the Shareholders’ Representative,
or to the Company Securityholders after Closing, to:
Shareholder Representative Services
LLC
950 17th Street, Suite
1400
Denver, CO 80202
Attn: Managing Director
Fax: (303) 623-0294
Email: deals@srsacquiom.com
if
to the Purchaser or Merger Sub:
Chardan Healthcare Acquisition Corp.
17 State Street, 21st
Floor
New York, NY 10004
Attn: Jonas Grossman
Fax:
e-mail:grossmanj@chardanspac.com
to (which shall not constitute
notice):
Loeb & Loeb LLP
345 Park Ave
New York, NY 10154
Attention: Giovanni Caruso
Fax: (212) 937-3943
e-mail: gcaruso@loeb.com
to (which shall not constitute
notice):
Meitar Liquornik Geva Leshem Tal
16 Abba Hillel Road
Ramat Gan, Israel
Attention: Mike Rimon, Adv.
Email: mrimon@meitar.com
14.2 Amendments; No
Waivers; Remedies.
(a) This Agreement cannot
be amended, except by a writing signed by each party, and cannot be terminated orally or by course of conduct. No provision hereof
can be waived, except by a writing signed by the party against whom such waiver is to be enforced, and any such waiver shall apply
only in the particular instance in which such waiver shall have been given.
(b) Neither any failure
or delay in exercising any right or remedy hereunder or in requiring satisfaction of any condition herein nor any course of dealing
shall constitute a waiver of or prevent any party from enforcing any right or remedy or from requiring satisfaction of any condition.
No notice to or demand on a party waives or otherwise affects any obligation of that party or impairs any right of the party giving
such notice or making such demand, including any right to take any action without notice or demand not otherwise required by this
Agreement. No exercise of any right or remedy with respect to a breach of this Agreement shall preclude exercise of any other
right or remedy, as appropriate to make the aggrieved party whole with respect to such breach, or subsequent exercise of any right
or remedy with respect to any other breach.
(c) Except as otherwise
expressly provided herein, no statement herein of any right or remedy shall impair any other right or remedy stated herein or
that otherwise may be available.
(d) Notwithstanding anything
else contained herein, neither shall any party seek, nor shall any party be liable for, punitive or exemplary damages, under any
tort, contract, equity, or other legal theory, with respect to any breach (or alleged breach) of this Agreement or any provision
hereof or any matter otherwise relating hereto or arising in connection herewith.
14.3 Arm’s length
bargaining; no presumption against drafter. This Agreement has been negotiated at arm’s-length by parties of equal bargaining
strength, each represented by counsel or having had but declined the opportunity to be represented by counsel and having participated
in the drafting of this Agreement. This Agreement creates no fiduciary or other special relationship between the parties, and
no such relationship otherwise exists. No presumption in favor of or against any party in the construction or interpretation of
this Agreement or any provision hereof shall be made based upon which Person might have drafted this Agreement or such provision.
14.4 Publicity.
Except as required by law or applicable stock exchange rules and except with respect to the Additional Purchaser SEC Documents,
the parties agree that neither they nor their agents shall issue any press release or make any other public disclosure concerning
the transactions contemplated hereunder without the prior approval of the other party hereto. If a party is required to make such
a disclosure as required by law or applicable stock exchange rules, the party making such determination will, if practicable in
the circumstances, use reasonable commercial efforts to allow the other party reasonable time to comment on such disclosure in
advance of its issuance. Notwithstanding anything in this Agreement to the contrary, following the Closing Date and the public
announcement of the Merger, the Shareholders’ Representative shall be permitted to include in its marketing materials that
it has been engaged to serve as the Shareholders’ Representative in connection with the Merger as long as such materials
do not disclose any of the other terms of the Merger or the other transactions contemplated herein.
14.5 Expenses.
The costs and expenses in connection with this Agreement and the transactions contemplated hereby shall be paid by the Purchaser
after the Closing. If the Closing does not take place, each party (in the case of the Shareholders’ Representative, solely
on behalf of the Company Securityholders) shall be responsible for its own expenses.
14.6 No Assignment
or Delegation. No party may assign any right or delegate any obligation hereunder, including by merger, consolidation, operation
of law, or otherwise, without the written consent of the other party. Any purported assignment or delegation without such consent
shall be void, in addition to constituting a material breach of this Agreement.
14.7 Governing Law.
This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware, without giving effect
to the conflict of laws principles thereof, except that matters referred to in Article II that relate to the effectuation of the
Merger are exclusively governed by the Law of the State of Israel.
14.8 Counterparts;
facsimile signatures. This Agreement may be executed in counterparts, each of which shall constitute an original, but all
of which shall constitute one agreement. This Agreement shall become effective upon delivery to each party of an executed counterpart
or the earlier delivery to each party of original, photocopied, or electronically transmitted signature pages that together (but
need not individually) bear the signatures of all other parties.
14.9 Entire Agreement.
This Agreement together with the Additional Agreements, sets forth the entire agreement of the parties with respect to the subject
matter hereof and thereof and supersedes all prior and contemporaneous understandings and agreements related thereto (whether
written or oral), all of which are merged herein. No provision of this Agreement or any Additional Agreement may be explained
or qualified by any agreement, negotiations, understanding, discussion, conduct or course of conduct or by any trade usage. Except
as otherwise expressly stated herein or any Additional Agreement, there is no condition precedent to the effectiveness of any
provision hereof or thereof.
14.10 Severability.
A determination by a court or other legal authority that any provision that is not of the essence of this Agreement is legally
invalid shall not affect the validity or enforceability of any other provision hereof. The parties shall cooperate in good faith
to substitute (or cause such court or other legal authority to substitute) for any provision so held to be invalid a valid provision,
as alike in substance to such invalid provision as is lawful.
14.11 Construction
of certain terms and references; captions. In this Agreement:
(a) References to particular
sections and subsections, schedules, and exhibits not otherwise specified are cross-references to sections and subsections, schedules,
and exhibits of this Agreement.
(b) The words “herein,”
“hereof,” “hereunder,” and words of similar import refer to this Agreement as a whole and not to any particular
provision of this Agreement, and, unless the context requires otherwise, “party” means a party signatory hereto.
(c) Any use of the singular
or plural, or the masculine, feminine, or neuter gender, includes the others, unless the context otherwise requires; “including”
means “including without limitation;” “or” means “and/or;” “any” means “any
one, more than one, or all;” and, unless otherwise specified, any financial or accounting term has the meaning of the term
under United States generally accepted accounting principles as consistently applied heretofore by the Company.
(d) Unless otherwise specified,
any reference to any agreement (including this Agreement), instrument, or other document includes all schedules, exhibits, or
other attachments referred to therein, and any reference to a statute or other law includes any rule, regulation, ordinance, or
the like promulgated thereunder, in each case, as amended, restated, supplemented, or otherwise modified from time to time. Any
reference to a numbered schedule means the same-numbered section of the disclosure schedule. Any reference in a schedule contained
in the disclosure schedules delivered by a party hereunder shall be deemed to be an exception to (or, as applicable, a disclosure
for purposes of) the applicable representations and warranties (or applicable covenants) that are contained in the section or
subsection of this Agreement that corresponds to such schedule and any other representations and warranties of such party that
are contained in this Agreement to which the relevance of such item thereto is reasonably apparent on its face. The mere inclusion
of an item in a schedule as an exception to (or, as applicable, a disclosure for purposes of) a representation or warranty shall
not be deemed an admission that such item represents a material exception or material fact, event or circumstance or that such
item would have a Material Adverse Effect or establish any standard of materiality to define further the meaning of such terms
for purposes of this Agreement.
(e) If any action is required
to be taken or notice is required to be given within a specified number of days following a specific date or event, the day of
such date or event is not counted in determining the last day for such action or notice. If any action is required to be taken
or notice is required to be given on or before a particular day which is not a Business Day, such action or notice shall be considered
timely if it is taken or given on or before the next Business Day.
(f) Captions are not a
part of this Agreement, but are included for convenience, only.
(g) For the avoidance of
any doubt, all references in this Agreement to “the knowledge or best knowledge of the Company” or similar terms shall
be deemed to include the actual knowledge of Sigal Fattal, Assaf Oron and Jonathan Solomon.
14.12 Further Assurances.
Each party shall execute and deliver such documents and take such action, as may reasonably be considered within the scope of
such party’s obligations hereunder, necessary to effectuate the transactions contemplated by this Agreement.
14.13 Third Party Beneficiaries.
Except as provided in Section 9.5 and Section 14.16, neither this Agreement nor any provision hereof confers any benefit or right
upon or may be enforced by any Person not a signatory hereto.
14.14 Waiver. Reference
is made to the final prospectus of the Purchaser, dated December 18, 2018 (the “Prospectus”). The Company has
read the Prospectus and understands that the Purchaser has established the Trust Account for the benefit of the public shareholders
of the Purchaser and the underwriters of the IPO pursuant to the Trust Agreement and that, except for a portion of the interest
earned on the amounts held in the Trust Account, the Purchaser may disburse monies from the Trust Account only for the purposes
set forth in the Trust Agreement. For and in consideration of the Purchaser agreeing to enter into this Agreement, each of the
Company and the Shareholders’ Representative, for itself and on behalf of the Shareholders, hereby agrees that it does not
have any right, title, interest or claim of any kind in or to any monies in the Trust Account and hereby agrees that it will not
seek recourse against the Trust Account for any claim it may have in the future as a result of, or arising out of, any negotiations,
contracts or agreements with the Purchaser.
14.15 Shareholders’
Representative. By virtue of the adoption of this Agreement and the transactions contemplated hereby, the approval of the
principal terms of the Merger, and the consummation of the Merger or participating in the Merger and receiving the benefits thereof,
including the right to receive the consideration payable in connection with the Merger, each Company Securityholder shall be deemed
to have appointed the designation of, and hereby designates, Shareholder Representative Services LLC as the Shareholders’
Representative for all purposes in connection with this Agreement and the agreements ancillary hereto, including, but not limited
to, (i) to give and receive notices and communications to Purchaser for any purpose under this Agreement and the Additional Agreements,
(ii) to agree to, negotiate, enter into settlements and compromises of and demand arbitration and comply with orders of courts
and awards of arbitrators with respect to any indemnification claims (including Third-Party Claims) under Section 11.1 or, following
the Closing, other disputes arising under or related to this Agreement, (iii) to enter into and deliver the Escrow Agreement on
behalf of each of the Company Securityholders, (iv) to authorize or object to delivery to Purchaser of the Escrow Fund, or any
portion thereof, in satisfaction of indemnification claims by the Purchaser in accordance with the provisions of the Escrow Agreement,
(v) to act on behalf of Company Securityholders in accordance with the provisions of the Agreement, the securities described herein
and any other document or instrument executed in connection with the Agreement and the Merger and (vi) to take all actions necessary
or appropriate in the judgment of the Shareholders’ Representative for the accomplishment of the foregoing. The Shareholders’
Representative may resign at any time. Such agency may be changed by the Company Securityholders from time to time upon no less
than twenty (20) days prior written notice to the Purchaser, provided, however, that the Shareholders’ Representative may
not be removed unless holders of a majority of the shares of Company Capital Stock (on an as converted to Ordinary Shares and
Ordinary A Shares basis) outstanding immediately prior to the Effective Time agree to such removal. Any vacancy in the position
of Shareholders’ Representative may be filled by approval of the holders of a majority of the shares of Company Capital
Stock (on an as converted to Ordinary Shares and Ordinary A Shares basis) outstanding immediately prior to the Effective Time.
No bond shall be required of the Shareholders’ Representative. The Shareholders’ Representative will incur no liability
of any kind with respect to any action or omission by the Shareholders’ Representative in connection with the Shareholders’
Representative’s services pursuant to this Agreement and any agreements ancillary hereto, except in the event of liability
directly resulting from the Shareholders’ Representative’s gross negligence or willful misconduct. The Shareholders’
Representative shall not be liable for any action or omission pursuant to the advice of counsel. The Company Securityholders will
indemnify, defend and hold harmless the Shareholders’ Representative from and against any and all losses, liabilities, damages,
claims, penalties, fines, forfeitures, actions, fees, costs and expenses (including the fees and expenses of counsel and experts
and their staffs and all expense of document location, duplication and shipment) (collectively, “Representative Losses”)
arising out of or in connection with the Shareholders’ Representative’s execution and performance of this Agreement
and any agreements ancillary hereto, in each case as such Representative Loss is suffered or incurred; provided, that Representative
Losses shall not include costs (other than third party expenses) incurred by the Shareholders’ Representative in the ordinary
course of business of the Shareholders’ Representative under the engagement letter entered into by the Shareholders’
Representative, the Company, and certain of the Company Securityholders; provided, further, that in the event that any such Representative
Loss is finally adjudicated to have been directly caused by the gross negligence or willful misconduct of the Shareholders’
Representative, the Shareholders’ Representative will reimburse the Company Securityholders the amount of such indemnified
Representative Loss to the extent attributable to such gross negligence or willful misconduct. If not paid directly to the Shareholders’
Representative by the Company Securityholders, any such Representative Losses may be recovered by the Shareholders’ Representative
from (x) the funds in the Expense Fund, and (y) the amounts in the Escrow Fund at such time as remaining amounts would otherwise
be distributable to the Company Securityholders; provided, that while this section allows the Shareholders’ Representative
to be paid from the aforementioned sources of funds, this does not relieve the Company Securityholders from their obligation to
promptly pay such Representative Losses as they are suffered or incurred, nor does it prevent the Shareholders’ Representative
from seeking any remedies available to it at law or otherwise. In no event will the Shareholders’ Representative be required
to advance its own funds on behalf of the Company Securityholders or otherwise. Notwithstanding anything in this Agreement to
the contrary, any restrictions or limitations on liability or indemnification obligations of, or provisions limiting the recourse
against non-parties otherwise applicable to, the Company Securityholders set forth elsewhere in this Agreement are not intended
to be applicable to the indemnities provided to the Shareholders’ Representative under this section. The foregoing indemnities
will survive the Closing, the resignation or removal of the Shareholders’ Representative or the termination of this Agreement.
Upon the Closing, the Company will wire US$30,000 (the “Expense Fund”) to the Shareholders’ Representative,
which will be used for the purposes of paying directly, or reimbursing the Shareholders’ Representative for, any third party
expenses pursuant to this Agreement and the agreements ancillary hereto. The Company Securityholders will not receive any interest
or earnings on the Expense Fund and irrevocably transfer and assign to the Shareholders’ Representative any ownership right
that they may otherwise have had in any such interest or earnings. The Shareholders’ Representative will not be liable
for any loss of principal of the Expense Fund other than as a result of its gross negligence or willful misconduct. The Shareholders’
Representative will hold these funds separate from its corporate funds, will not use these funds for
its operating expenses or any other corporate purposes and will not voluntarily make these funds available
to its creditors in the event of bankruptcy. As soon as practicable following the completion of the Shareholders’
Representative’s responsibilities, the Shareholders’ Representative will deliver any remaining balance of the Expense
Fund to the Company. For tax purposes, the Expense Fund will be treated as having been received and voluntarily set aside by the
Company at the time of Closing.
14.16 Non-Recourse.
This Agreement may be enforced only against, and any dispute, claim or controversy based upon, arising out of or related to this
Agreement or the transactions contemplated hereby may be brought only against, the entities that are expressly named as parties
hereto and then only with respect to the specific obligations set forth in this Agreement with respect to such party. No past,
present or future director, officer, employee, incorporator, member, partner, shareholder, agent, attorney, advisor, lender or
representative or Affiliate of any named party to this Agreement (which Persons are intended third party beneficiaries of this
Section 14.16) shall have any liability (whether in contract or tort, at law or in equity or otherwise, or based upon any theory
that seeks to impose liability of an entity party against its owners or Affiliates) for any one or more of the representations,
warranties, covenants, agreements or other obligations or liabilities of such named party or for any dispute, claim or controversy
based on, arising out of, or related to this Agreement or the transactions contemplated hereby, provided, that this Section 14.16
shall not apply to Section 14.15, which shall be enforceable by the Shareholders’ Representative in its entirety against
the Company Securityholders.
14.17 Waiver of Conflict;
Privilege.
(a) Each of the parties
hereto acknowledge and agree that Goodwin Procter LLP (“Goodwin”) and Zysman, Aharoni, Gayer & Co (“ZAG”,
and together with Goodwin, “Company Counsel”) have each acted as counsel to the Company in connection with the negotiation
of this Agreement and consummation of the transactions contemplated hereby.
(b) Purchaser hereby consents
and agrees to, and agrees to cause the Company to consent and agree to, Company Counsel representing the Shareholders’ Representative
and/or any of the Company Securityholders (collectively, the “Seller Parties”) after the Closing, including
with respect to disputes in which the interests of the Seller Parties may be directly adverse to Purchaser and its Affiliates
(including the Company).
(c) In connection with
the foregoing, Purchaser hereby irrevocably waives and agrees not to assert, and agrees to cause the Company to irrevocably waive
and not to assert, any conflict of interest arising from or in connection with (i) either Company Counsel’s prior representation
of the Company or (ii) either Company Counsel’s representation of the Seller Parties after the Closing.
(d) Purchaser further agrees,
on behalf of itself and, after the Closing, on behalf of the Company, that all communications in any form or format whatsoever
between or among any of either Company Counsel, the Company, any of the Seller Parties, or any of their respective directors,
officers employees or other representatives that directly relate to the negotiation, documentation and consummation of the transactions
contemplated by this Agreement or any dispute arising under this Agreement (collectively, the “Deal Communications”)
shall be deemed to be retained and owned collectively by the Company Securityholders, shall be controlled by the Shareholders’
Representative on behalf of the Company Securityholders and shall not pass to or be claimed by Purchaser or the Company. All Deal
Communications that are attorney-client privileged (the “Privileged Deal Communications”) shall remain privileged
after the Closing and the privilege and the expectation of client confidence relating thereto shall belong solely to the Shareholders’
Representative and the Company Securityholders, shall be controlled by the Shareholders’ Representative on behalf of the
Company Securityholders and shall not pass to or be claimed by Purchaser or the Company.
(e) Notwithstanding the
foregoing, in the event that a dispute arises between any Indemnified Party, on the one hand, and a third party other than the
Shareholders’ Representative or any Company Securityholder, on the other hand, Purchaser or the Company may assert the attorney-client
privilege to prevent the disclosure of the Privileged Deal Communications to such third party; provided, however, that neither
Purchaser nor the Company may waive such privilege without the prior written consent of the Shareholders’ Representative.
In the event that Purchaser or the Company is legally required by an Order or otherwise to access or obtain a copy of all or a
portion of the Deal Communications, Purchaser (x) shall, to the extent legally permissible, reasonably promptly notify the Shareholders’
Representative in writing (including by making specific reference to this Section), (y) agrees that the Shareholders’ Representative
can seek a protective order and (z) agrees to use, at the Securityholders’ sole cost and expense, commercially reasonable
efforts to assist therewith.
(f) To the extent that
files or other materials maintained by either Company Counsel constitute property of its clients, only the Shareholders’
Representative and the Company Securityholders shall hold such property rights and neither Company Counsel shall have no duty
to reveal or disclose any such files or other materials or any Deal Communications by reason of any attorney-client relationship
between a Company Counsel, on the one hand, and the Company, on the other hand.
14.18 No Other Representations;
No Reliance. NONE OF THE COMPANY, ANY COMPANY SECURITYHOLDER NOR ANY OF THEIR RESPECTIVE REPRESENTATIVES HAS MADE ANY REPRESENTATIONS
OR WARRANTIES, EXPRESS OR IMPLIED, OF ANY NATURE WHATSOEVER RELATING TO THE COMPANY OR THE BUSINESS OR OTHERWISE IN CONNECTION
WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY ADDITIONAL AGREEMENT, OTHER THAN THOSE REPRESENTATIONS AND WARRANTIES
EXPRESSLY SET FORTH IN ARTICLE V, IN EACH CASE, AS MODIFIED BY THE SCHEDULES TO THIS AGREEMENT. Without limiting the generality
of the foregoing, neither the Company, any Company Securityholder nor any of their respective representatives has made, and shall
not be deemed to have made, any representations or warranties in the materials relating to the Company made available to Purchaser
and its representatives, including due diligence materials, or in any presentation of the business of the Company by management
of the Company or others in connection with the transactions contemplated hereby, and no statement contained in any of such materials
or made in any such presentation shall be deemed a representation or warranty hereunder or otherwise or deemed to be relied upon
by Purchaser or Merger Sub in executing, delivering and performing this Agreement, the Additional Agreements or the transactions
contemplated hereby or thereby, in each case except for the representations and warranties set forth in Article V as modified
by the Schedules to this Agreement. It is understood that any cost estimates, projections or other predictions, any data, any
financial information or any memoranda or offering materials or presentations, including but not limited to, any offering memorandum
or similar materials made available by the Company, any Company Securityholder or their respective representatives are not and
shall not be deemed to be or to include representations or warranties of the Company or any Company Securityholder, and are not
and shall not be deemed to be relied upon by Purchaser or Merger Sub in executing, delivering and performing this Agreement, the
Additional Agreement and the transactions contemplated hereby or thereby, in each case except for the representations and warranties
set forth in Article V, in each case, as modified by the Schedules to this Agreement. Except for the specific representations
and warranties expressly made by the Company in Article V, in each case as modified by the Schedules: (i) Purchaser acknowledges
and agrees that: (A) neither the Company, the Company Securityholders nor any of their respective representatives is making or
has made any representation or warranty, express or implied, at law or in equity, in respect of the Company, the business, assets,
liabilities, operations, prospects or condition (financial or otherwise) of the Company, the nature or extent of any liabilities
of the Company, the effectiveness or the success of any operations of the Company or the accuracy or completeness of any confidential
information memoranda, projections, forecasts or estimates of earnings, or other information (financial or otherwise) regarding
the Company furnished to the Purchaser, Merger Sub or their respective representatives or made available to Purchaser and its
representatives in any “data rooms,” “virtual data rooms,” management presentations or any other form
in expectation of, or in connection with, the transactions contemplated hereby, or in respect of any other matter or thing whatsoever;
and (B) no representative of any Company Securityholder or the Company has any authority, express or implied, to make any representations,
warranties or agreements not specifically set forth in Article V of this Agreement and subject to the limited remedies herein
provided; (ii) Purchaser specifically disclaims that it is relying upon or has relied upon any such other representations or warranties
that may have been made by any Person, and acknowledges and agrees that the Company Securityholders and the Company have specifically
disclaimed and do hereby specifically disclaim any such other representation or warranty made by any Person; and (iii) none of
the Company, the Company Securityholders nor any other Person shall have any liability to Purchaser or any other Person with respect
to any such other representations or warranties, including without limitation projections, forecasts, estimates, plans or budgets
of future revenue, expenses or expenditures, future results of operations, future cash flows or the future financial condition
of the Company or the future business, operations or affairs of the Company.
[The remainder of this
page intentionally left blank; signature pages to follow]
IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be duly executed as of the day and year first above written.
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Purchaser:
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CHARDAN HEALTHCARE ACQUISITION CORP.
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By:
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/s/ Jonas Grossman
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Name: Jonas Grossman
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Title: Chief Executive Officer
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Merger Sub:
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CHAC MERGER SUB LTD.
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By:
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/s/ Jonas Grossman
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Name: Jonas Grossman
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Title: Director
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Company:
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BIOMX LTD.
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By:
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/s/ Jonathan Solomon
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Name: Jonathan Solomon
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Title: Chief Executive Officer
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Shareholders’ Representative:
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SHAREHOLDER REPRESENTATIVE SERVICES LLC, solely in its capacity as the Shareholders’
Representative
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By:
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/s/ Sam Riffe
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Name: Sam Riffe
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Title: Managing Director
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Solely for the purposes
of Section 9.10
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CHARDAN INVESTMENTS LLC
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By:
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/s/ Jonas Grossman
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Name: Jonas Grossman
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Title: Managing Director
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Annex B
CHARDAN
HEALTHCARE ACQUISITION CORP.
VOTING
AGREEMENT
This
Voting Agreement (this “Agreement”) is made as of [·], 2019 by and among Chardan Healthcare Acquisition
Corp., a Delaware corporation (the “Company”), BiomX Ltd., an Israeli company (“BiomX”),
Chardan Investments, LLC (“Chardan”) and each of the individuals and entities set forth on the signature page
hereto (each a “Voting Party” and collectively, the “Voting Parties”). For purposes of this
Agreement, capitalized terms used and not defined herein shall have the respective meanings ascribed to them in the Merger Agreement
(as defined below).
RECITALS
WHEREAS,
the Company, BiomX, CHAC Merger Sub Ltd., an Israeli company (“Merger Sub”), and Shareholder Representative
Services LLC, as the representative of the shareholders of the Company (the “Shareholders’ Representative”)
entered into a Merger Agreement, dated [·], 2019 (the “Merger Agreement”); and
WHEREAS,
each of the Voting Parties, currently owns, or on closing of the transactions contemplated by the Merger Agreement, will own,
shares of the Company’s capital stock, and wishes to provide for orderly elections of the Company’s board of directors
as described herein.
NOW
THEREFORE, in consideration of the foregoing and of the promises and covenants contained herein, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
1.
Agreement to Vote. During the term of this Agreement, each Voting Party agrees to vote all securities of the Company that
may vote in the election of the Company’s directors that such Voting Party owns from time to time (hereinafter referred
to as the “Voting Shares”) in accordance with the provisions of this Agreement, whether at a regular or special
meeting of stockholders or any class or series of stockholders or by written consent.
2.
Election of Boards of Directors.
2.1
Voting. During the term of this Agreement, each Voting Party agrees to vote all Voting Shares in such manner as may be necessary
to elect (and maintain in office) as members of the Company’s Board of Directors the following persons:
(a)
Two (2) person(s) (each a “Chardan Designee”) designated by Chardan to serve for two (2) years from the Closing
Date (as defined in the Merger Agreement); and
(b)
Five (five) person(s) (each a “Stockholder Designee,” and collectively, the “Stockholder Designees”)
designated below, which may be subsequently (following Closing) changed by the Shareholders’ Representative; and
2.2
Initial Designees. The initial Chardan Designees are Jonas Grossman and Gbola Amusa. The initial Stockholder Designees are
Jonathan Solomon, Yaron Breski, Erez Chimovitz, Robbie Woodman and one vacancy.
2.3
Size of the Board. The parties hereto agree that they shall, and that they shall cause their respective designees to, maintain
the size of the Company’s Board of Directors at seven (7) persons for two (2) years from the Closing Date.
2.4
Obligations; Removal of Directors; Vacancies. The obligations of the Voting Parties pursuant to this Section 2 shall include
any stockholder vote to amend the Company’s Amended and Restated Certificate of Incorporation as required to effect the
intent of this Agreement. Each of the Voting Parties and the Company agree not to take any actions that would contravene or materially
and adversely affect the provisions of this Agreement and the intention of the parties with respect to the composition of the
Company’s Board of Directors as herein stated. The parties acknowledge that the fiduciary duties of each member of the Company’s
Board of Directors are to the Company’s stockholders as a whole. In the event any director elected pursuant to the terms
hereof ceases to serve as a member of the Company’s Board of Directors, the Company and the Voting Parties agree to take
all such action as is reasonable and necessary, including the voting of shares of capital stock of the Company by the Voting Parties
as to which they have beneficial ownership, to cause the election or appointment of such other person designated by the Company
or the Shareholders’ Representative (after Closing) , as the case may be, to the Board of Directors as may be designated
on the terms provided herein.
3.
Approval of Amendment to the BiomX 2015 Equity Incentive Plan. During the term of this Agreement each Voting Party agrees
to vote all Voting Shares in such manner as may be necessary to approve an amended BiomX 2015 Employee Stock Option Plan (the
“Equity Incentive Plan”), (or the adoption of a new equity incentive plan having the same effect) that will
be assumed by Company as of the Effective Time), subject to and in accordance with Section 9.11 of the Merger Agreement.
4.
Successors in Interest of the Voting Parties and the Company. The provisions of this Agreement shall be binding upon the successors
in interest of any Voting Party with respect to any of such Voting Party’s Voting Shares or any voting rights therein, unless
such shares are sold into the public markets. Each Voting Party shall not, and the Company shall not, permit the transfer of any
Voting Party’s Voting Shares (except for sales of Voting Shares into the public markets), unless and until the person to
whom such securities are to be transferred shall have executed a written agreement pursuant to which such person becomes a party
to this Agreement and agrees to be bound by all the provisions hereof as if such person was a Voting Party hereunder.
5.
Covenants. The Company and each Voting Party agrees to take all actions required to ensure that the rights given to each Voting
Party hereunder are effective and that each Voting Party enjoys the benefits thereof. Such actions include, without limitation,
the use of best efforts to cause the nomination of the designees, as provided herein, for election as directors of the Company.
Neither the Company nor any Voting Party will, by any voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be performed hereunder by the Company or any such Voting Party, as applicable, but will at all times in good
faith assist in the carrying out of all of the provisions of this Agreement and in the taking of all such actions as may be necessary
or appropriate in order to protect the rights of each Voting Party hereunder against impairment.
6.
Grant of Proxy. The parties agree that this Agreement does not constitute the granting of a proxy to any party or any other
person; provided, however, that should the provisions of this Agreement be construed to constitute the granting of proxies, such
proxies shall be deemed coupled with an interest and are irrevocable for the term of this Agreement.
7.
Specific Enforcement. It is agreed and understood that monetary damages would not adequately compensate an injured party for
the breach of this Agreement by any party hereto, that this Agreement shall be specifically enforceable, and that any breach of
this Agreement shall be the proper subject of a temporary or permanent injunction or restraining order. Further, each party hereto
waives any claim or defense that there is an adequate remedy at law for such breach or threatened breach and agrees that a party’s
rights would be materially and adversely affected if the obligations of the other parties under this Agreement were not carried
out in accordance with the terms and conditions hereof.
8.
Manner of Voting. The voting of shares pursuant to this Agreement may be effected in person, by proxy, by written consent
or in any other manner permitted by applicable law.
9.
Termination. This Agreement shall terminate upon the first to occur of the following:
9.1
The date that is two (2) years from the Closing Date; or
9.2
immediately prior to a transaction pursuant to which a person or group other than current shareholders of the Company or the
Voting Parties, or their respective affiliates, will control greater than 50% of the Company’s voting power with respect
to the election of directors of the Company.
10.
Amendments and Waivers. Except as otherwise provided herein, any provision of this Agreement may be amended or the observance
thereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written
consent of (a) the Company, and (b) the holders of a majority of Voting Shares then held by the Voting Parties and the Shareholders’
Representative, voting separately as a class; provided, however, that the right of the Company to nominate the Company
Designee shall not be amended without the written consent of a majority in interest of the stockholders of the Company; and provided
further, that the right of the Shareholders’ Representative to nominate the Stockholder Designees shall not be amended
without the written consent of the Shareholders’ Representative.
11.
Stock Splits, Stock Dividends, etc. In the event of any stock split, stock dividend, recapitalization, reorganization or the
like, any securities issued with respect to Voting Shares held by Voting Parties shall become Voting Shares for purposes of this
Agreement.
12.
Severability. In the event that any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
13.
Governing Law. This Agreement and the legal relations between the parties arising hereunder shall be governed by and interpreted
in accordance with the laws of the State of New York without reference to its conflicts of laws provisions, except that all matters
relating to the fiduciary duties of the Company’s Board of Directors shall be subject to the laws of Delaware.
14.
Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all
of which together shall constitute one instrument.
15.
Successors and Assigns. Except as otherwise expressly provided in this Agreement, the provisions hereof shall inure to the
benefit of, and be binding upon, the successors and assigns of the parties hereto.
16.
Entire Agreement. This Agreement constitutes the full and entire understanding and agreement among the parties, and supersedes
any prior agreement or understanding among the parties, with regard to the subjects hereof and thereof, and no party shall be
liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth
herein or therein.
[Remainder
of page intentionally left blank; signature page follows]
This
Voting Agreement is hereby executed effective as of the date first set forth above.
“COMPANY”
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CHARDAN
HEALTHCARE ACQUISITION CORP.,
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a
Delaware corporation
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By:
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Name:
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Jonas
Grossman
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Title:
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President
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“CHARDAN”
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CHARDAN
INVESTMENTS, LLC
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a
Delaware limited liability company
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By:
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Name:
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Jonas
Grossman
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Title:
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Managing
Member
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“BiomX”
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BIOMX
LTD.,
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an
Israeli company
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By:
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Name:
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Title:
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[SHAREHOLDERS]
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Annex
C
REGISTRATION
RIGHTS AGREEMENT
THIS
REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is entered into as of the [●] day of [●],
2019, by and among Chardan Healthcare Acquisition Corp., a Delaware corporation (the “Company”) and
the undersigned parties listed under Stockholder on the signature page hereto (each, an “Stockholder” and collectively,
the “Stockholders”).
WHEREAS,
pursuant to a Merger Agreement dated as of July 16, 2019 (“Merger Agreement”) by and among the Company,
the Stockholders and certain other persons and entities, the Stockholders agreed to accept the Merger Shares (i.e., Common Stock
of the Company) in exchange for their shares of Capital Stock of BiomX Ltd., an Israeli company (“BiomX”);
WHEREAS,
pursuant to the terms of the Merger Agreement, the Company agreed to register the Merger Shares (as defined below) held by the
Stockholders for resale under the Securities Act (as defined below and the Stockholders and the Company desire to enter into this
Agreement to provide the Stockholders with certain rights relating to the registration of the securities held by them as of the
date hereof;
NOW,
THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1.
DEFINITIONS. The following capitalized terms used herein have the following meanings:
“Agreement”
means this Agreement, as amended, restated, supplemented, or otherwise modified from time to time.
“BiomX
Securityholder Purchase Agreements” means those certain BiomX Stakeholder Stock Purchase Agreements, substantially
in the form attached as an exhibit to the Merger Agreement, to be entered into among the Company, certain BiomX shareholders and
persons who hold Company Securities.
“Business
Combination” means the acquisition of direct or indirect ownership through a merger, share exchange, asset acquisition,
share purchase, recapitalization, reorganization or other similar type of transaction, of one or more businesses or entities.
“Commission”
means the Securities and Exchange Commission, or any other Federal agency then administering the Securities Act or the Exchange
Act.
“Common
Stock” means the common stock, par value $0.0001 per share, of the Company.
“Company”
is defined in the preamble to this Agreement.
“Demand
Registration” is defined in Section 2.1.1.
“Demanding
Holder” is defined in Section 2.1.1.
“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated
thereunder, all as the same shall be in effect at the time.
“Form
S-3” is defined in Section 2.3.
“Indemnified
Party” is defined in Section 4.3.
“Indemnifying
Party” is defined in Section 4.3.
“Stockholder
Indemnified Party” is defined in Section 4.1.
“Maximum
Number of Shares” means the number of shares of Common Stock of the Company in an underwritten offering, if the
managing Underwriter or Underwriters advises the Company in writing that the dollar amount or number of shares of Registrable
Securities which the Stockholders desire to sell, taken together with all other shares of Common stock or other securities which
the Company desires to sell and the shares of Common Stock, if any, as to which registration has been requested pursuant to written
contractual registration rights held by other stockholders of the Company who desire to sell, which exceeds the maximum dollar
amount or maximum number of shares that can be sold in such offering without adversely affecting the proposed offering price,
the timing, the distribution method, or the probability of success of such offering such maximum dollar amount or maximum number
of shares.
“Merger
Shares” means the shares of Common Stock of the Company issued or issuable to the Stockholders pursuant to the terms
of the Merger Agreement and shares of Common Stock of the Company issued or issuable pursuant to warrants to purchase Common Stock
of the Company under Section 4.1(c) of the Merger Agreement.
“Notices”
is defined in Section 6.2.
“Piggy-Back
Registration” is defined in Section 2.2.1.
“Prior
Agreement” is defined in Section 2.2.2.
“Pro
Rata” is defined in Section 2.1.4.
“Register,”
“Registered” and “Registration” mean a registration effected by preparing
and filing a registration statement or similar document in compliance with the requirements of the Securities Act, and the applicable
rules and regulations promulgated thereunder, and such registration statement becoming effective.
“Registrable
Securities” means (i) the Merger Shares, (ii) any shares of Common Stock acquired by the Stockholders pursuant to
the BiomX Securityholder Purchase Agreements or otherwise in connection with the Business Combination and (iii) any warrants,
shares of capital stock or other securities of the Company issued as a dividend or other distribution with respect to or in exchange
for or in replacement of such Merger Shares. As to any particular Registrable Securities, such securities shall cease to be Registrable
Securities when: (a) a Registration Statement with respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been sold, transferred, disposed of or exchanged in accordance with such Registration
Statement; (b) such securities shall have been otherwise transferred, new certificates for them not bearing a legend restricting
further transfer shall have been delivered by the Company and subsequent public distribution of them shall not require registration
under the Securities Act; (c) such securities shall have ceased to be outstanding, or (d) the Registrable Securities are freely
saleable under Rule 144 without volume limitations.
“Registration
Statement” means a registration statement filed by the Company with the Commission in compliance with the Securities
Act and the rules and regulations promulgated thereunder for a public offering and sale of equity securities, or securities or
other obligations exercisable or exchangeable for, or convertible into, equity securities (other than a registration statement
on Form S-4 or Form S-8, or their successors, or any registration statement covering only securities proposed to be issued in
exchange for securities or assets of another entity).
“SEC”
means the Securities and Exchange Commission.
“Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder,
all as the same shall be in effect at the time.
“Stockholder”
is defined in the preamble to this Agreement.
“Underwriter”
means a securities broker-dealer who purchases any Registrable Securities as principal in an underwritten offering and not as
part of such broker-dealer’s market-making activities.
2.
REGISTRATION RIGHTS.
2.1
Demand Registration.
2.1.1
Request for Registration. At any time and from time to time on or after the six month anniversary of the closing of the transactions
contemplated by the Merger Agreement, the holders of twenty-five percent (25%) of such Registrable Securities, may make a written
demand for registration under the Securities Act of all or part of their Registrable Securities (a “Demand Registration”).
Any demand for a Demand Registration shall specify the number of Registrable Securities proposed to be sold and the intended method(s)
of distribution thereof. The Company will within ten (10) days of the Company’s receipt of the Demand Registration notify
all holders of Registrable Securities of the demand, and each holder of Registrable Securities who wishes to include all or a
portion of such holder’s Registrable Securities in the Demand Registration (each such holder including shares of Registrable
Securities in such registration, a “Demanding Holder”) shall so notify the Company within fifteen (15) days after
the receipt by the holder of the notice from the Company. Upon any such request, the Demanding Holders shall be entitled to have
their Registrable Securities included in the Demand Registration, subject to Section 2.1.4 and the provisos set forth in Section
3.1.1. The Company shall not be obligated to effect more than an aggregate of two (2) Demand Registrations under this Section
2.1.1 in respect of all Registrable Securities.
2.1.2
Effective Registration. A registration will not count as a Demand Registration until the Registration Statement filed with the
Commission with respect to such Demand Registration has been declared effective and the Company has complied with all of its obligations
under this Agreement with respect thereto; provided, however, that if, after such Registration Statement has been declared effective,
the offering of Registrable Securities pursuant to a Demand Registration is interfered with by any stop order or injunction of
the Commission or any other governmental agency or court, the Registration Statement with respect to such Demand Registration
will be deemed not to have been declared effective, unless and until, (i) such stop order or injunction is removed, rescinded
or otherwise terminated, and (ii) a majority-in-interest of the Demanding Holders thereafter elect to continue the offering; provided,
further, that the Company shall not be obligated to file a second Registration Statement until a Registration Statement that has
been filed is counted as a Demand Registration or is terminated.
2.1.3
Underwritten Offering. If a majority-in-interest of the Demanding Holders so elect and such holders so advise the Company as part
of their written demand for a Demand Registration, the offering of such Registrable Securities pursuant to such Demand Registration
shall be in the form of an underwritten offering. In such event, the right of any holder to include its Registrable Securities
in such registration shall be conditioned upon such holder’s participation in such underwriting and the inclusion of such
holder’s Registrable Securities in the underwriting to the extent provided herein. All Demanding Holders proposing to distribute
their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the Underwriter
or Underwriters selected for such underwriting by a majority-in-interest of the holders initiating the Demand Registration.
2.1.4
Reduction of Offering. If the managing Underwriter or Underwriters for a Demand Registration that is to be an underwritten offering
advises the Company and the Demanding Holders in writing that the dollar amount or number of shares of Registrable Securities
which the Demanding Holders desire to sell, taken together with all other shares of Common Stock or other securities which the
Company desires to sell and the shares of Common Stock, if any, as to which registration has been requested pursuant to written
contractual piggy-back registration rights held by other stockholders of the Company who desire to sell, exceeds the maximum dollar
amount or maximum number of shares that can be sold in such offering without adversely affecting the proposed offering price,
the timing, the distribution method, or the probability of success of such offering (such maximum dollar amount or maximum number
of shares, as applicable, the “Maximum Number of Shares”), then the Company shall include in such registration: (i)
first, the Registrable Securities as to which Demand Registration has been requested by the Demanding Holders (pro rata in accordance
with the number of shares that each such Demanding Holder has requested be included in such registration, regardless of the number
of shares held by each such Demanding Holder (such proportion is referred to herein as “Pro Rata”)) that can be sold
without exceeding the Maximum Number of Shares; (ii) second, to the extent that the Maximum Number of Shares has not been reached
under the foregoing clause (i), the shares of Common Stock or other securities that the Company desires to sell that can be sold
without exceeding the Maximum Number of Shares; and (iii) third, to the extent that the Maximum Number of Shares has not been
reached under the foregoing clauses (i) and (ii), the shares of Common Stock or other securities for the account of other persons
that the Company is obligated to register pursuant to written contractual arrangements with such persons and that can be sold
without exceeding the Maximum Number of Shares.
2.1.5
Withdrawal. If a majority-in-interest of the Demanding Holders disapprove of the terms of any underwriting or are not entitled
to include all of their Registrable Securities in any offering, such majority-in-interest of the Demanding Holders may elect to
withdraw from such offering by giving written notice to the Company and the Underwriter or Underwriters of their request to withdraw
prior to the effectiveness of the Registration Statement filed with the Commission with respect to such Demand Registration. If
the majority-in-interest of the Demanding Holders withdraws from a proposed offering relating to a Demand Registration, then such
registration shall not count as a Demand Registration provided for in Section 2.1.2.2 Piggy-Back Registration.
2.2.1
Piggy-Back Rights. If at any time on or after the date of this Agreement the Company proposes to file a Registration Statement
under the Securities Act with respect to an offering of equity securities, or securities or other obligations exercisable or exchangeable
for, or convertible into, equity securities, by the Company for its own account or for stockholders of the Company for their account
(or by the Company and by stockholders of the Company), other than a Registration Statement (i) filed in connection with any employee
stock option or other benefit plan, (ii) for an exchange offer or offering of securities solely to the Company’s existing
stockholders, (iii) for an offering of debt that is convertible into equity securities of the Company or (iv) for a dividend reinvestment
plan, then the Company shall (x) give written notice of such proposed filing to the holders of Registrable Securities as soon
as practicable but in no event less than ten (10) days before the anticipated filing date, which notice shall describe the amount
and type of securities to be included in such offering, the intended method(s) of distribution, and the name of the proposed managing
Underwriter or Underwriters, if any, of the offering, and (y) offer to the holders of Registrable Securities in such notice the
opportunity to register the sale of such number of shares of Registrable Securities as such holders may request in writing within
five (5) days following receipt of such notice (a “Piggy-Back Registration”). The Company shall cause
such Registrable Securities to be included in such registration and shall use its best efforts to cause the managing Underwriter
or Underwriters of a proposed underwritten offering to permit the Registrable Securities requested to be included in a Piggy-Back
Registration on the same terms and conditions as any similar securities of the Company and to permit the sale or other disposition
of such Registrable Securities in accordance with the intended method(s) of distribution thereof. All holders of Registrable Securities
proposing to distribute their securities through a Piggy-Back Registration that involves an Underwriter or Underwriters shall
enter into an underwriting agreement in customary form with the Underwriter or Underwriters selected for such Piggy-Back Registration.
2.2.2
Reduction of Offering. If the managing Underwriter or Underwriters for a Piggy-Back Registration under this Agreement or
a demand registration on behalf of other holders of the Company’s securities under that certain Registration Rights Agreement
dated as of December 13, 2018 (“Prior Agreement”) that is to be an underwritten offering advises the
Company and the holders of Registrable Securities hereunder in writing that the dollar amount or number of shares of Common Stock
which the Company desires to sell, taken together with the shares of Common Stock, if any, as to which registration has been demanded
pursuant to the Prior Agreement, the Registrable Securities as to which registration shall otherwise be required under this Section
2.2, and the shares of Common Stock, if any, as to which registration has been requested pursuant to the this Agreement and the
Prior Agreement, exceeds the Maximum Number of Shares in an underwritten offering, then the Company shall include in any such
registration:
a)
If the registration is undertaken for the Company’s account and the Company has previously complied with a demand registration
made pursuant to the Prior Agreement or the date of the initial filing of the registration statement for such offering is more
than 12 months after the date of this Agreement: (A) first, the shares of Common Stock or other securities that the Company desires
to sell that can be sold without exceeding the Maximum Number of Shares; (B) second, to the extent that the Maximum Number of
Shares has not been reached under the foregoing clause (A), the shares of Common Stock or other securities, if any, comprised
of Registrable Securities, as to which registration has been requested pursuant to the applicable piggy-back registration rights
of security holders party to this Agreement, and the holders of securities under the Prior Agreement, Pro Rata, that can be sold
without exceeding the Maximum Number of Shares; and (C) third, to the extent that the Maximum Number of Shares has not been reached
under the foregoing clauses (A) and (B), the shares of Common Stock or other securities for the account of other persons that
the Company is obligated to register pursuant to written contractual piggy-back registration rights with such persons and that
can be sold without exceeding the Maximum Number of Shares;
(b)
If the registration is undertaken for the Company’s account and the Company has not complied with a demand registration
made pursuant to the Prior Agreement or the date of the initial filing of the registration statement for such offering is within
12 months of the date of this Agreement: (A) first, the shares of Common Stock or other securities that the Company desires to
sell that can be sold without exceeding the Maximum Number of Shares; (B) second, to the extent that the Maximum Number of Shares
has not been reached under the foregoing clause (A), to the holders of securities party to the Prior Agreement, (C) third, to
the extent that the Maximum Number of Shares has not been reached under the foregoing clauses (A) and (B), the shares of Common
Stock or other securities, if any, comprised of Registrable Securities, as to which registration has been requested pursuant to
the applicable piggy-back registration rights of security holders party to this Agreement, and the holders of securities under
the Prior Agreement, Pro Rata, that can be sold without exceeding the Maximum Number of Shares; and (D) fourth, to the extent
that the Maximum Number of Shares has not been reached under the foregoing clauses (A), (B) and (C), the shares of Common Stock
or other securities for the account of other persons that the Company is obligated to register pursuant to written contractual
piggy-back registration rights with such persons and that can be sold without exceeding the Maximum Number of Shares;
c)
If the registration is a “demand” registration undertaken at the demand of persons, (A) first, the shares of Common
Stock or other securities for the account of the demanding persons under the Prior Agreement that can be sold without exceeding
the Maximum Number of Shares; (B) second, to the extent that the Maximum Number of Shares has not been reached under the foregoing
clause (A), the shares of Common Stock or other securities that the Company desires to sell that can be sold without exceeding
the Maximum Number of Shares; (C) third, to the extent that the Maximum Number of Shares has not been reached under the foregoing
clauses (A) and (B), collectively the shares of Common Stock or other securities comprised of Registrable Securities, Pro Rata,
as to which registration has been requested pursuant to the terms hereof, that can be sold without exceeding the Maximum Number
of Shares; and (D) fourth, to the extent that the Maximum Number of Shares has not been reached under the foregoing clauses (A),
(B) and (C), the shares of Common Stock or other securities for the account of other persons that the Company is obligated to
register pursuant to written contractual arrangements with such persons, that can be sold without exceeding the Maximum Number
of Shares.
2.2.3
Withdrawal. Any holder of Registrable Securities may elect to withdraw such holder’s request for inclusion of Registrable
Securities in any Piggy-Back Registration by giving written notice to the Company of such request to withdraw prior to the effectiveness
of the Registration Statement. The Company (whether on its own determination or as the result of a withdrawal by persons making
a demand pursuant to written contractual obligations) may withdraw a Registration Statement at any time prior to the effectiveness
of such Registration Statement. Notwithstanding any such withdrawal, the Company shall pay all expenses incurred by the holders
of Registrable Securities in connection with such Piggy-Back Registration as provided in Section 3.3.
2.2.4
Unlimited Piggy-Back Registration Rights. For purposes of clarity, any Registration effected pursuant to Section 2.2 hereof
shall not be counted as a Registration pursuant to a Demand Registration effected under Section 2.1 hereof.
2.3
Registrations on Form S-3. The holders of Registrable Securities may at any time and from time to time, request in writing
that the Company register the resale of any or all of such Registrable Securities on Form S-3 or any similar short-form registration
which may be available to the Company under the Securities Act and he rules and regulations of the SEC at such time (“Form
S-3”); provided, however, that the Company shall not be obligated to effect such request through an underwritten
offering. Upon receipt of such written request, the Company will promptly give written notice of the proposed registration to
all other holders of Registrable Securities, and, as soon as practicable thereafter, effect the registration of all or such portion
of such holder’s or holders’ Registrable Securities as are specified in such request, together with all or such portion
of the Registrable Securities or other securities of the Company, if any, of any other holder or holders joining in such request
as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided,
however, that the Company shall not be obligated to effect any such registration pursuant to this Section 2.3: (i) if Form S-3
is not available for such offering; or (ii) if the holders of the Registrable Securities, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities
(if any) at any aggregate price to the public of less than $500,000. Registrations effected pursuant to this Section 2.3 shall
not be counted as Demand Registrations effected pursuant to Section 2.1.
3.
REGISTRATION PROCEDURES.
3.1
Filings; Information. Whenever the Company is required to effect the registration of any Registrable Securities pursuant
to Section 2, the Company shall use its best efforts to effect the registration and sale of such Registrable Securities in accordance
with the intended method(s) of distribution thereof as expeditiously as practicable, and in connection with any such request:
3.1.1
Filing Registration Statement. The Company shall use its best efforts to, as expeditiously as possible and in any event within
thirty (30) days after receipt of a request for a Demand Registration pursuant to Section 2.1, prepare and file with the Commission
a Registration Statement on any form for which the Company then qualifies or which counsel for the Company shall deem appropriate
and which form shall be available for the sale of all Registrable Securities to be Registered thereunder in accordance with the
intended method(s) of distribution thereof, and shall use its best efforts to cause such Registration Statement to become effective
and use its best efforts to keep it effective for the period required by Section 3.1.3; provided, however, that the Company shall
have the right to defer any Demand Registration for up to thirty (30) days, and any Piggy-Back Registration for such period as
may be applicable to deferment of any Demand Registration to which such Piggy-Back Registration relates, in each case if the Company
shall furnish to the holders a certificate signed by the President or Chairman of the Company stating that, in the good faith
judgment of the Board of Directors of the Company, it would be materially detrimental to the Company and its stockholders for
such Registration Statement to be effected at such time; provided further, however, that the Company shall not have the right
to exercise the right set forth in the immediately preceding proviso more than once in any 365-day period in respect of a Demand
Registration hereunder.
3.1.2
Copies. The Company shall, prior to filing a Registration Statement or prospectus, or any amendment or supplement thereto,
furnish without charge to the holders of Registrable Securities included in such registration, and such holders’ legal counsel,
copies of such Registration Statement as proposed to be filed, each amendment and supplement to such Registration Statement (in
each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such Registration
Statement (including each preliminary prospectus), and such other documents as the holders of Registrable Securities included
in such registration or legal counsel for any such holders may request in order to facilitate the disposition of the Registrable
Securities owned by such holders.
3.1.3
Amendments and Supplements. The Company shall prepare and file with the Commission such amendments, including post-effective
amendments, and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary
to keep such Registration Statement effective and in compliance with the provisions of the Securities Act until all Registrable
Securities and other securities covered by such Registration Statement have been disposed of in accordance with the intended method(s)
of distribution set forth in such Registration Statement or such securities have been withdrawn.
3.1.4
Notification. After the filing of a Registration Statement, the Company shall promptly, and in no event more than two (2)
business days after such filing, notify the holders of Registrable Securities included in such Registration Statement of such
filing, and shall further notify such holders promptly and confirm such advice in writing in all events within two (2) business
days of the occurrence of any of the following: (i) when such Registration Statement becomes effective; (ii) when any post-effective
amendment to such Registration Statement becomes effective; (iii) the issuance or threatened issuance by the Commission of any
stop order (and the Company shall take all actions required to prevent the entry of such stop order or to remove it if entered);
and (iv) any request by the Commission for any amendment or supplement to such Registration Statement or any prospectus relating
thereto or for additional information or of the occurrence of an event requiring the preparation of a supplement or amendment
to such prospectus so that, as thereafter delivered to the purchasers of the securities covered by such Registration Statement,
such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and promptly make available to the holders of Registrable
Securities included in such Registration Statement any such supplement or amendment; except that before filing with the Commission
a Registration Statement or prospectus or any amendment or supplement thereto, including documents incorporated by reference,
the Company shall furnish to the holders of Registrable Securities included in such Registration Statement and to the legal counsel
for any such holders, copies of all such documents proposed to be filed sufficiently in advance of filing to provide such holders
and legal counsel with a reasonable opportunity to review such documents and comment thereon, and the Company shall not file any
Registration Statement or prospectus or amendment or supplement thereto, including documents incorporated by reference, to which
such holders or their legal counsel shall object.
3.1.5
State Securities Laws Compliance. The Company shall use its best efforts to (i) register or qualify the Registrable Securities
covered by the Registration Statement under such securities or “blue sky” laws of such jurisdictions in the United
States as the holders of Registrable Securities included in such Registration Statement (in light of their intended plan of distribution)
may request and (ii) take such action necessary to cause such Registrable Securities covered by the Registration Statement to
be registered with or approved by such other governmental authorities as may be necessary by virtue of the business and operations
of the Company and do any and all other acts and things that may be necessary or advisable to enable the holders of Registrable
Securities included in such Registration Statement to consummate the disposition of such Registrable Securities in such jurisdictions;
provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where it would
not otherwise be required to qualify but for this paragraph or subject itself to taxation in any such jurisdiction.
3.1.6
Agreements for Disposition. The Company shall enter into customary agreements (including, if applicable, an underwriting
agreement in customary form) and take such other actions as are reasonably required in order to expedite or facilitate the disposition
of such Registrable Securities. The representations, warranties and covenants of the Company in any underwriting agreement which
are made to or for the benefit of any Underwriters, to the extent applicable, shall also be made to and for the benefit of the
holders of Registrable Securities included in such registration statement. No holder of Registrable Securities included in such
registration statement shall be required to make any representations or warranties in the underwriting agreement except, if applicable,
with respect to such holder’s organization, good standing, authority, title to Registrable Securities, lack of conflict
of such sale with such holder’s material agreements and organizational documents, and with respect to written information
relating to such holder that such holder has furnished in writing expressly for inclusion in such Registration Statement or as
otherwise provided herein.
3.1.7
Cooperation. The principal executive officer of the Company, the principal financial officer of the Company, the principal
accounting officer of the Company and all other officers and members of the management of the Company shall cooperate fully in
any offering of Registrable Securities hereunder, which cooperation shall include, without limitation, the preparation of the
Registration Statement with respect to such offering and all other offering materials and related documents, and participation
in meetings with Underwriters, attorneys, accountants and potential stockholders.
3.1.8
Records. The Company shall make available for inspection by the holders of Registrable Securities included in such Registration
Statement, any Underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant
or other professional retained by any holder of Registrable Securities included in such Registration Statement or any Underwriter,
all financial and other records, pertinent corporate documents and properties of the Company, as shall be necessary to enable
them to exercise their due diligence responsibility, and cause the Company’s officers, directors and employees to supply
all information requested by any of them in connection with such Registration Statement.
3.1.9
Opinions and Comfort Letters. Upon request, the Company shall furnish to each holder of Registrable Securities included
in any Registration Statement a signed counterpart, addressed to such holder, of (i) any opinion of counsel to the Company delivered
to any Underwriter and (ii) any comfort letter from the Company’s independent public accountants delivered to any Underwriter.
In the event no legal opinion is delivered to any Underwriter, the Company shall furnish to each holder of Registrable Securities
included in such Registration Statement, at any time that such holder elects to use a prospectus, an opinion of counsel to the
Company to the effect that the Registration Statement containing such prospectus has been declared effective and that no stop
order is in effect.
3.1.10
Earnings Statement. The Company shall comply with all applicable rules and regulations of the Commission and the Securities
Act, and make available to its stockholders, as soon as practicable, an earnings statement covering a period of twelve (12) months,
which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.
3.1.11
Listing. The Company shall use its best efforts to cause all Registrable Securities included in any registration to be
listed on such exchanges or otherwise designated for trading in the same manner as similar securities issued by the Company are
then listed or designated or, if no such similar securities are then listed or designated, in a manner satisfactory to the holders
of a majority of the Registrable Securities included in such registration.
3.1.12
Road Show. If the registration involves the registration of Registrable Securities involving gross proceeds in excess of
$5,000,000, the Company shall use its reasonable efforts to make available senior executives of the Company to participate in
customary “road show” presentations that may be reasonably requested by the Underwriter in any underwritten offering.
3.2
Obligation to Suspend Distribution. Upon receipt of any notice from the Company of the happening of any event of the kind
described in Section 3.1.4(iv), or, in the case of a resale registration on Form S-3 pursuant to Section 2.3 hereof, upon any
suspension by the Company, pursuant to a written insider trading compliance program adopted by the Company’s Board of Directors,
of the ability of all “insiders” covered by such program to transact in the Company’s securities because of
the existence of material non-public information, which period shall not exceed more than thirty (30) days, each holder of Registrable
Securities included in any registration shall immediately discontinue disposition of such Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities until such holder receives the supplemented or amended prospectus
contemplated by Section 3.1.4(iv) or the restriction on the ability of “insiders” to transact in the Company’s
securities is removed, as applicable, and, if so directed by the Company, each such holder will deliver to the Company all copies,
other than permanent file copies then in such holder’s possession, of the most recent prospectus covering such Registrable
Securities at the time of receipt of such notice.
3.3
Registration Expenses. The Company shall bear all costs and expenses incurred in connection with any Demand Registration
pursuant to Section 2.1, Piggy-Back Registration pursuant to Section 2.2, and any registration on Form S-3 effected pursuant to
Section 2.3, and all expenses incurred in performing or complying with its other obligations under this Agreement, whether or
not the Registration Statement becomes effective, including, without limitation: (i) all registration and filing fees; (ii) fees
and expenses of compliance with securities or “blue sky” laws (including fees and disbursements of counsel in connection
with blue sky qualifications of the Registrable Securities); (iii) printing expenses; (iv) the Company’s internal expenses
(including, without limitation, all salaries and expenses of its officers and employees); (v) the fees and expenses incurred in
connection with the listing of the Registrable Securities as required by Section 3.1.12; (vi) Financial Industry Regulatory Authority
fees; (vii) fees and disbursements of counsel for the Company and fees and expenses for independent certified public accountants
retained by the Company (including the expenses or costs associated with the delivery of any opinions or comfort letters requested
pursuant to Section 3.1.9); (viii) the reasonable fees and expenses of any special experts retained by the Company in connection
with such registration and (ix) the reasonable fees and expenses of one legal counsel selected by the holders of a majority-in-interest
of the Registrable Securities included in such registration. The Company shall have no obligation to pay any underwriting discounts
or selling commissions attributable to the Registrable Securities being sold by the holders thereof, which underwriting discounts
or selling commissions shall be borne by such holders. Additionally, in an underwritten offering, all selling stockholders and
the Company shall bear the expenses of the Underwriter pro rata in proportion to the respective amount of shares each is selling
in such offering.
3.4
Information. The holders of Registrable Securities shall provide such information as may reasonably be requested by the
Company, or the managing Underwriter, if any, in connection with the preparation of any Registration Statement, including amendments
and supplements thereto, in order to effect the registration of any Registrable Securities under the Securities Act pursuant to
Section 2 and in connection with the Company’s obligation to comply with Federal and applicable state securities laws. In
addition, the holders of Registrable Securities shall comply with all prospectus delivery requirements under the Securities Act
and applicable SEC regulations.
4.
INDEMNIFICATION AND CONTRIBUTION.
4.1
Indemnification by the Company. The Company agrees to indemnify and hold harmless each Stockholder and each other holder
of Registrable Securities, and each of their respective officers, employees, affiliates, directors, partners, members, attorneys
and agents, and each person, if any, who controls an Stockholder and each other holder of Registrable Securities (within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act) (each, an “Stockholder Indemnified Party”),
from and against any expenses, losses, judgments, claims, damages or liabilities, whether joint or several, arising out of or
based upon any untrue statement (or allegedly untrue statement) of a material fact contained in any Registration Statement under
which the sale of such Registrable Securities was registered under the Securities Act, any preliminary prospectus, final prospectus
or summary prospectus contained in the Registration Statement, or any amendment or supplement to such Registration Statement,
or arising out of or based upon any omission (or alleged omission) to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, or any violation by the Company of the Securities Act or any rule or regulation
promulgated thereunder applicable to the Company and relating to action or inaction required of the Company in connection with
any such registration; and the Company shall promptly reimburse the Stockholder Indemnified Party for any legal and any other
expenses reasonably incurred by such Stockholder Indemnified Party in connection with investigating and defending any such expense,
loss, judgment, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to
the extent that any such expense, loss, claim, damage or liability arises out of or is based upon any untrue statement or allegedly
untrue statement or omission or alleged omission made in such Registration Statement, preliminary prospectus, final prospectus,
or summary prospectus, or any such amendment or supplement, in reliance upon and in conformity with information furnished to the
Company, in writing, by such selling holder expressly for use therein. The Company also shall indemnify any Underwriter of the
Registrable Securities, their officers, affiliates, directors, partners, members and agents and each person who controls such
Underwriter on substantially the same basis as that of the indemnification provided above in this Section 4.1.
4.2
Indemnification by Holders of Registrable Securities. Each selling holder of Registrable Securities will, in the event
that any registration is being effected under the Securities Act pursuant to this Agreement of any Registrable Securities held
by such selling holder, indemnify and hold harmless the Company, each of its directors and officers and each Underwriter (if any),
and each other selling holder and each other person, if any, who controls another selling holder or such Underwriter within the
meaning of the Securities Act, against any losses, claims, judgments, damages or liabilities, whether joint or several, insofar
as such losses, claims, judgments, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue
statement or allegedly untrue statement of a material fact contained in any Registration Statement under which the sale of such
Registrable Securities was registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus
contained in the Registration Statement, or any amendment or supplement to the Registration Statement, or arise out of or are
based upon any omission or the alleged omission to state a material fact required to be stated therein or necessary to make the
statement therein not misleading, if the statement or omission was made in reliance upon and in conformity with information furnished
in writing to the Company by such selling holder expressly for use therein, and shall reimburse the Company, its directors and
officers, and each other selling holder or controlling person for any legal or other expenses reasonably incurred by any of them
in connection with investigation or defending any such loss, claim, damage, liability or action. Each selling holder’s indemnification
obligations hereunder shall be several and not joint and shall be limited to the amount of any net proceeds actually received
by such selling holder.
4.3
Conduct of Indemnification Proceedings. Promptly after receipt by any person of any notice of any loss, claim, damage or
liability or any action in respect of which indemnity may be sought pursuant to Section 4.1 or 4.2, such person (the “Indemnified
Party”) shall, if a claim in respect thereof is to be made against any other person for indemnification hereunder,
notify such other person (the “Indemnifying Party”) in writing of the loss, claim, judgment, damage,
liability or action; provided, however, that the failure by the Indemnified Party to notify the Indemnifying Party shall not relieve
the Indemnifying Party from any liability which the Indemnifying Party may have to such Indemnified Party hereunder, except and
solely to the extent the Indemnifying Party is actually prejudiced by such failure. If the Indemnified Party is seeking indemnification
with respect to any claim or action brought against the Indemnified Party, then the Indemnifying Party shall be entitled to participate
in such claim or action, and, to the extent that it wishes, jointly with all other Indemnifying Parties, to assume control of
the defense thereof with counsel satisfactory to the Indemnified Party. After notice from the Indemnifying Party to the Indemnified
Party of its election to assume control of the defense of such claim or action, the Indemnifying Party shall not be liable to
the Indemnified Party for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that in any action in which both the Indemnified Party
and the Indemnifying Party are named as defendants, the Indemnified Party shall have the right to employ separate counsel (but
no more than one such separate counsel) to represent the Indemnified Party and its controlling persons who may be subject to liability
arising out of any claim in respect of which indemnity may be sought by the Indemnified Party against the Indemnifying Party,
with the fees and expenses of such counsel to be paid by such Indemnifying Party if, based upon the written opinion of counsel
of such Indemnified Party, representation of both parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, consent
to entry of judgment or effect any settlement of any claim or pending or threatened proceeding in respect of which the Indemnified
Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such judgment
or settlement includes an unconditional release of such Indemnified Party from all liability arising out of such claim or proceeding.
4.4
Contribution.
4.4.1
If the indemnification provided for in the foregoing Sections 4.1, 4.2 and 4.3 is unavailable to any Indemnified Party in respect
of any loss, claim, damage, liability or action referred to herein, then each such Indemnifying Party, in lieu of indemnifying
such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim,
damage, liability or action in such proportion as is appropriate to reflect the relative fault of the Indemnified Parties and
the Indemnifying Parties in connection with the actions or omissions which resulted in such loss, claim, damage, liability or
action, as well as any other relevant equitable considerations. The relative fault of any Indemnified Party and any Indemnifying
Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to information supplied by such Indemnified Party or such
Indemnifying Party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
4.4.2
The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 4.4 were determined
by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred
to in the immediately preceding Section 4.4.1.
4.4.3
The amount paid or payable by an Indemnified Party as a result of any loss, claim, damage, liability or action referred to in
the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other
expenses incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding
the provisions of this Section 4.4, no holder of Registrable Securities shall be required to contribute any amount in excess of
the dollar amount of the net proceeds (after payment of any underwriting fees, discounts, commissions or taxes) actually received
by such holder from the sale of Registrable Securities which gave rise to such contribution obligation. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
5.
RULE 144.
5.1
Rule 144. The Company covenants that it shall file any reports required to be filed by it under the Securities Act and
the Exchange Act and shall take such further action as the holders of Registrable Securities may reasonably request, all to the
extent required from time to time to enable such holders to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by Rule 144 under the Securities Act, as such Rules may be amended from time
to time, or any similar rule or regulation hereafter adopted by the Commission.
6.
MISCELLANEOUS.
6.1
Assignment; No Third Party Beneficiaries. This Agreement and the rights, duties and obligations of the Company hereunder
may not be assigned or delegated by the Company in whole or in part. This Agreement and the rights, duties and obligations of
the holders of Registrable Securities hereunder may be freely assigned or delegated by such holder of Registrable Securities in
conjunction with and to the extent of any transfer of Registrable Securities by any such holder. This Agreement and the provisions
hereof shall be binding upon and shall inure to the benefit of each of the parties, to the permitted assigns of the Stockholders
or holder of Registrable Securities or of any assignee of the Stockholders or holder of Registrable Securities. This Agreement
is not intended to confer any rights or benefits on any persons that are not party hereto other than as expressly set forth in
Article 4 and this Section 6.1.
6.2
Notices. All notices, demands, requests, consents, approvals or other communications (collectively, “Notices”)
required or permitted to be given hereunder or which are given with respect to this Agreement shall be in writing and shall be
personally served, delivered by reputable air courier service with charges prepaid, or transmitted by hand delivery, telegram,
telex or facsimile, addressed as set forth below, or to such other address as such party shall have specified most recently by
written notice. Notice shall be deemed given on the date of service or transmission if personally served or transmitted by telegram,
telex or facsimile; provided, that if such service or transmission is not on a business day or is after normal business hours,
then such notice shall be deemed given on the next business day. Notice otherwise sent as provided herein shall be deemed given
on the next business day following timely delivery of such notice to a reputable air courier service with an order for next-day
delivery.
To
the Company:
Chardan
Healthcare Acquisition Corp.
17
State Street, Floor 21
New
York, NY 10004
Attn:
Jonas Grossman, President
with
a copy to (which shall not constitute notice):
Loeb
& Loeb LLP
345 Park Avenue
New York,
NY 10154
Attention:
Giovanni Caruso
To
a Stockholder, to the address set forth below such Stockholder’s name on Exhibit A hereto.
6.3
Severability. This Agreement shall be deemed severable, and the invalidity or unenforceability of any term or provision
hereof shall not affect the validity or enforceability of this Agreement or of any other term or provision hereof. Furthermore,
in lieu of any such invalid or unenforceable term or provision, the parties hereto intend that there shall be added as a part
of this Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible that is valid
and enforceable.
6.4
Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all
of which taken together shall constitute one and the same instrument.
6.5
Entire Agreement. This Agreement (including all agreements entered into pursuant hereto and all certificates and instruments
delivered pursuant hereto and thereto) constitute the entire agreement of the parties with respect to the subject matter hereof
and supersede all prior and contemporaneous agreements, representations, understandings, negotiations and discussions between
the parties, whether oral or written.
6.6
Modifications and Amendments. No amendment, modification or termination of this Agreement shall be binding upon the Company
unless executed in writing by the Company. No amendment, modification or termination of this Agreement shall be binding upon the
holders of the Registrable Securities unless executed in writing by the holders of a majority of the Registrable Securities.
6.7
Titles and Headings. Titles and headings of sections of this Agreement are for convenience only and shall not affect the
construction of any provision of this Agreement.
6.8
Waivers and Extensions. Any party to this Agreement may waive any right, breach or default which such party has the right
to waive, provided that such waiver will not be effective against the waiving party unless it is in writing, is signed by such
party, and specifically refers to this Agreement. Waivers may be made in advance or after the right waived has arisen or the breach
or default waived has occurred. Any waiver may be conditional. No waiver of any breach of any agreement or provision herein contained
shall be deemed a waiver of any preceding or succeeding breach thereof nor of any other agreement or provision herein contained.
No waiver or extension of time for performance of any obligations or acts shall be deemed a waiver or extension of the time for
performance of any other obligations or acts.
6.9
Remedies Cumulative. In the event that the Company fails to observe or perform any covenant or agreement to be observed
or performed under this Agreement, the Stockholder or any other holder of Registrable Securities may proceed to protect and enforce
its rights by suit in equity or action at law, whether for specific performance of any term contained in this Agreement or for
an injunction against the breach of any such term or in aid of the exercise of any power granted in this Agreement or to enforce
any other legal or equitable right, or to take any one or more of such actions, without being required to post a bond. None of
the rights, powers or remedies conferred under this Agreement shall be mutually exclusive, and each such right, power or remedy
shall be cumulative and in addition to any other right, power or remedy, whether conferred by this Agreement or now or hereafter
available at law, in equity, by statute or otherwise.
6.10
Governing Law. This Agreement shall be governed by, interpreted under, and construed in accordance with the internal laws
of the State of New York applicable to agreements made and to be performed within the State of New York, without giving effect
to any choice-of-law provisions thereof that would compel the application of the substantive laws of any other jurisdiction.
6.11
Waiver of Trial by Jury. Each party hereby irrevocably and unconditionally waives the right to a trial by jury in any action,
suit, counterclaim or other proceeding (whether based on contract, tort or otherwise) arising out of, connected with or relating
to this Agreement, the transactions contemplated hereby, or the actions of the Stockholder in the negotiation, administration,
performance or enforcement hereof.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be executed and delivered by their duly authorized
representatives as of the date first written above.
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COMPANY:
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CHARDAN
HEALTHCARE ACQUISITION CORP.
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By:
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Name:
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Jonas
Grossman
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Title:
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President
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STOCKHOLDERS:
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Annex D
CHARDAN HEALTHCARE ACQUISITION CORP.
2019 OMNIBUS LONG-TERM INCENTIVE
PLAN
TABLE OF CONTENTS
Table of Contents
(continued)
Chardan
Healthcare Acquisition Corp.
2019 OMNIBUS LONG-TERM INCENTIVE PLAN
SECTION
1
GENERAL
1.1. Purpose.
The Chardan Healthcare Acquisition Corp. 2019 Omnibus Long-Term Incentive Plan (the “Plan”) has been established by
Chardan Healthcare Acquisition Corp., a Delaware corporation, (the “Company”) to (i) attract and retain persons eligible
to participate in the Plan; (ii) motivate Participants, by means of appropriate incentives, to achieve long-range goals; (iii)
provide incentive compensation opportunities that are competitive with those of other similar companies; and (iv) further align
the interests of Participants with those of the Company’s other stockholders through compensation that is based on the Company’s
shares; and thereby promote the long-term financial interest of the Company and the Related Companies including the growth in
value of the Company’s shares and enhancement of long-term stockholder return. Capitalized terms in the Plan are defined
in Section 2.
1.2. Participation.
Subject to the terms and conditions of the Plan, the Committee shall determine and designate, from time to time, from among the
Eligible Individuals, those persons who will be granted one or more Awards under the Plan, and thereby become “Participants”
in the Plan.
1.3. Foreign
Participants. In order to assure the viability of Awards granted to Participants who are subject to taxation in foreign countries,
the Committee may provide for such special terms as it may consider necessary or appropriate to accommodate differences in local
law, tax policy, or custom. Moreover, the Committee may approve such appendixes, supplements to, or amendments, restatements,
or alternative versions of, the Plan as it may consider necessary or appropriate for such purposes without thereby affecting the
terms of the Plan as in effect for any other purpose; provided, however, that no such supplements, amendments, restatements, or
alternative versions shall increase the share limitations contained in Section 3.1 of the Plan.
1.4. Operation
and Administration. The operation and administration of the Plan, including the Awards made under the Plan, shall be subject
to the provisions of Section 7 (relating to operation and administration).
1.5. History.
The Plan was adopted by the Company on [____], subject to approval by stockholders. To the extent not prohibited by Applicable
Laws, Awards which are to use shares of Stock reserved under the Plan that are contingent on the approval by the Company’s
stockholders may be granted prior to that meeting contingent on such approval. The Plan shall be unlimited in duration and, in
the event of Plan termination, shall remain in effect as long as any Awards under it are outstanding; provided, however, that
no Awards may be granted under the Plan after the ten-year anniversary of the date on which the stockholders approved the Plan.
SECTION
2
Definitions
2.1. “Administrator”
means the Board or any of its Committees as will be administering the Plan, in accordance with Section 7.
2.2. “Applicable Laws”
means the requirements relating to the administration of equity-based awards under U.S. state corporate laws, U.S. federal and
state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the
applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan.
2.3. “Award Agreement”
means the written agreement, including an electronic agreement, setting forth the terms and conditions applicable to each Award
granted under the Plan. The Award Agreement is subject to the terms and conditions of the Plan.
2.4. “Award” means
any award or benefit granted under the Plan, including, without limitation, the grant of Options and Full Value Awards.
2.5. “Board” means
the Board of Directors of the Company.
2.6. “Change in Control”
means the first to occur of any of the following:
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(a)
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the consummation of a purchase or other
acquisition by any person, entity or group of persons (within the meaning of Section
13(d) or 14(d) of the Exchange Act or any comparable successor provisions, other than
an acquisition by a trustee or other fiduciary holding securities under an employee benefit
plan or similar plan of the Company or a Related Company), of “beneficial ownership”
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more
of either the outstanding shares of Stock or the combined voting power of the Company’s
then outstanding voting securities entitled to vote generally;
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(b)
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the consummation of a reorganization, merger,
consolidation, acquisition, share exchange or other corporate transaction of the Company,
in each case, with respect to which persons who were stockholders of the Company immediately
prior to such reorganization, merger or consolidation do not, immediately thereafter,
own more than 50% of the combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company’s then outstanding
securities;
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(c)
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the consummation of any plan of liquidation
or dissolution of the Company providing for the sale or distribution of substantially
all of the assets of the Company and its Subsidiaries or the consummation of a sale of
substantially all of the assets of the Company and its Subsidiaries; or
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(d)
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at any time during any period of two consecutive
years, individuals who at the beginning of such period were members of the Board cease
for any reason to constitute at least a majority thereof (unless the election, or the
nomination for election by the Company’s stockholders, of each new director was
approved by a vote of at least two-thirds of the directors still in office at the time
of such election or nomination who were directors at the beginning of such period).
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2.7. “Code” means
the United States Internal Revenue Code of 1986, as amended. A reference to any provision of the Code shall include reference
to any successor provision of the Code.
2.8. “Committee”
has the meaning set forth in Section 7.1.
2.9. “Common Stock”
or “Stock” means the common stock of the Company.
2.10. “Company”
has the meaning set forth in Section 1.1.
2.11. “Consultant”
means any natural person engaged as a consultant or advisor by the Company or a Parent or Subsidiary or other Related Company
(as determined by the Committee) to render bona fide services to such entity and such services are not in connection with the
sale of shares of Stock in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the
Company’s securities.
2.12. “Director”
means a member of the Board.
2.13. “Eligible Individual”
means any Employee, Consultant or Director; provided, however, that to the extent required by the Code, an ISO may only be granted
to an Employee of the Company or a Parent or Subsidiary. An Award may be granted to an Employee, Consultant or Director, in connection
with hiring, retention or otherwise, prior to the date the Employee, Consultant or Director first performs services for the Company
or the Subsidiaries, provided that such Awards shall not become vested prior to the date the Employee, Consultant or Director
first performs such services.
2.14. “Employee”
means any person, including officers and Directors, employed by the Company or any Parent or Subsidiary of the Company or a Related
Company (as determined by the Committee). Neither service as a Director nor payment of a director’s fee by the Company will
be sufficient to constitute “employment” by the Company.
2.15. “Exchange Act”
means the Securities Exchange Act of 1934, as amended.
2.16. “Exercise Price”
of each Option granted under this Plan shall be established by the Committee or shall be determined by a method established by
the Committee at the time the Option is granted.
2.17. “Expiration Date”
has the meaning set forth in Section 4.6.
2.18. “Fair Market Value”
means, as of any date, the value of Common Stock determined as follows:
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(a)
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If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the New York
Stock Exchange, its Fair Market Value will be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on such exchange or system
on the last previous trading day prior to such date of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems reliable;
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(b)
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If the Common Stock is regularly quoted
by a recognized securities dealer but selling prices are not reported, the Fair Market
Value of a share of Stock will be the mean between the high bid and low asked prices
for the Common Stock on the last previous trading day prior to such date of determination
(or, if no bids and asks were reported on that date, as applicable, on the last trading
date such bids and asks were reported), as reported in The Wall Street Journal
or such other source as the Administrator deems reliable; or
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(c)
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In the absence of an established market
for the Common Stock, the Fair Market Value will be determined in good faith by the Administrator.
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2.19. A “Full Value Award”
is a grant of one or more shares of Stock or a right to receive one or more shares of Stock in the future, with such grant subject
to one or more conditions, as determined by the Committee.
2.20. An “Incentive Stock
Option” or an “ISO” is an Option that is intended to satisfy the requirements applicable to an “incentive
stock option” described in Section 422(b) of the Code.
2.21. A “Non-Qualified
Option or an “NQO” is an Option that is not intended to be an “incentive stock option” as that term is
described in Section 422(b) of the Code.
2.22. An “Option”
entitles the Participant to purchase shares of Stock at an Exercise Price established by the Committee. Any Option granted under
this Plan may be either an ISO or an NQO as determined in the discretion of the Committee.
2.23. “Outside Director”
means a Director of the Company who is not an officer or employee of the Company or the Related Companies.
2.24. “Parent” means
a parent corporation within the meaning of Section 424(e) of the Code.
2.25. “Participant”
means the holder of an outstanding Award.
2.26. “Performance Measures”
means performance goals based on any one or more of the following Company, Subsidiary, operating unit or division performance
measures: (i) earnings, including, but not limited to, operating income, earnings before or after taxes, earnings before
or after interest, depreciation, amortization, or extraordinary or special items or book value per share (which may exclude nonrecurring
items); (ii) pre-tax income or after-tax income; (iii) earnings per share of Stock (basic or diluted); (iv) operating
profit; (v) revenue, revenue growth or rate of revenue growth; (vi) return on assets (gross or net), return on investment,
return on capital, or return on equity; (vii) returns on sales or revenues; (viii) operating expenses; (ix) stock
price appreciation; (x) cash flow(s); (xi) implementation or completion of critical projects or processes; (xii) economic
value created; (xiii) cumulative earnings per share growth; (xiv) operating margin or profit margin; (xv) common
stock price or total stockholder return; (xvi) cost targets, reductions and savings, productivity and efficiencies; (xvii)
regulatory achievements; and implementation, completion or attainment of measurable objectives with respect to research, development,
products or projects, production volume levels; (xviii) the filing of a new drug application (“NDA”) or the approval
of the NDA by the Food and Drug Administration, the achievement of a launch of a new drug, and research and development milestones;
(xix) entry into a collaboration, development, joint venture or licensing agreement relating to product candidates or to commercialization
of products; and (xx) any combination of any of the foregoing. Each goal may be expressed on an absolute and/or relative
basis, may be based on or otherwise employ comparisons based on internal targets, the past performance of the Company and/or the
past or current performance of other companies or may be applied to the performance of the Company relative to a market index,
a group of other companies or a combination thereof, and in the case of earnings-based measures, may use or employ comparisons
relating to capital, stockholders equity and/or shares outstanding, investments or to assets or net assets, and may (but need
not) provide for adjustments for restructurings, extraordinary, and any other unusual, non-recurring, or similar changes.
2.27. “Period of Restriction”
means the period during which the transfer of shares of Stock are subject to restrictions and therefore, the shares of Stock are
subject to a substantial risk of forfeiture. Such restrictions may be based on the passage of time, the achievement of target
levels of performance, or the occurrence of other events as determined by the Administrator.
2.28. “Plan” has
the meaning set forth in Section 1.1.
2.29. “Related Company”
means any corporation, partnership, joint venture, limited liability company or other entity during any period in which a controlling
interest in such entity is owned, directly or indirectly, by the Company (or by any entity that is a successor to the Company),
and any other business venture designated by the Committee in which the Company (or any entity that is a successor to the Company)
has, directly or indirectly, a significant interest (whether through the ownership of securities or otherwise), as determined
in the discretion of the Committee.
2.30. “Securities Act”
means the Securities Act of 1933, as amended.
2.31. “Subsidiary”
means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.
2.32. “Termination Date”
means the date on which a Participant both ceases to be an employee of the Company and the Related Companies and ceases to perform
material services for the Company and the Related Companies (whether as a director or otherwise), regardless of the reason for
the cessation; provided that a “Termination Date” shall not be considered to have occurred during the period in which
the reason for the cessation of services is a leave of absence approved by the Company or the Related Company which was the recipient
of the Participant’s services; and provided, further that, with respect to an Outside Director, “Termination Date”
means the date on which the Outside Director’s service as an Outside Director terminates for any reason. If, as a result
of a sale or other transaction, the entity for which the Participant performs services ceases to be a Related Company (and such
entity is or becomes an entity separate from the Company), the occurrence of such transaction shall be the Participant’s
Termination Date. With respect to Awards that constitute deferred compensation subject to Section 409A of the Code, references
to the Participant's termination of employment (including references to the Participant's employment termination, and to the Participant
terminating employment, a Participant’s separation from service, and other similar reference) and references to a Participant's
termination as a Director (including separation from service and other similar references) shall mean the date that the Participant
incurs a “separation from service” within the meaning of Section 409A of the Code.
SECTION
3
shares of Stock and plan limits
3.1. Shares
of Stock and Other Amounts Subject to Plan. The shares of Stock for which Awards may be granted under the Plan shall be subject
to the following:
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(a)
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Subject to the following provisions of this
Section 3.1, the maximum number of shares of Stock that may be delivered to Participants
and their beneficiaries under the Plan shall be 1,000 shares of Stock (which number includes
all shares available for delivery under this Section 3.1(a) since the establishment of
the Plan, determined in accordance with the terms of the Plan). Shares of Stock issued
by the Company in connection with awards that are assumed or substituted in connection
with a reorganization, merger, consolidation, acquisition, share exchange or other corporate
transaction shall not be counted against the number of shares of Stock that may be issued
with respect to Awards under the Plan.
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(b)
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The aggregate number of shares of Stock
that may be delivered pursuant to the Plan as specified in Section 3.1(a) will automatically
increase on January 1 of each year, for a period of not more than ten (10) years, commencing
on January 1 of the year following the year in which the Effective Date occurs and ending
on (and including) January 1, 2029, in an amount equal to four percent (4%) of the total
number of shares of Stock outstanding on December 31 of the preceding calendar year.
Notwithstanding the foregoing, the Committee may act prior to January 1 of a given year
to provide that there will be no January 1 increase for such year or that the increase
for such year will be a lesser number of Shares than provided herein.
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(c)
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Only shares of Stock, if any, actually delivered
to the Participant or beneficiary on an unrestricted basis with respect to an Award shall
be treated as delivered for purposes of the determination under Section 3.1(a) above,
regardless of whether the Award is denominated in shares of Stock or cash. Consistent
with the foregoing:
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(i)
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To the extent any shares of Stock covered by an Award are
not delivered to a Participant or beneficiary because the Award is forfeited or cancelled,
or the shares of Stock are not delivered on an unrestricted basis (including, without
limitation, by reason of the Award being settled in cash), such shares of Stock shall
not be deemed to have been delivered for purposes of the determination under Section
3.1(a) above.
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(ii)
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Subject to the provisions of paragraph (i) above, the total
number of shares of Stock covered by an Award will be treated as delivered for purposes
of this paragraph (b) to the extent payments or benefits are delivered to the Participant
with respect to such shares. Accordingly (A) if shares covered by an Award are used to
satisfy the applicable tax withholding obligation or Exercise Price, the number of shares
held back by the Company to satisfy such withholding obligation or Exercise Price shall
be considered to have been delivered; (B) if the Exercise Price of any Option granted
under the Plan is satisfied by tendering shares of Stock to the Company (by either actual
delivery or by attestation, including shares of Stock that would otherwise be distributable
upon the exercise of the Option), the number of shares tendered to satisfy such Exercise
Price shall be considered to have been delivered; and (C) if shares of Stock are repurchased
by the Company with proceeds received from the exercise of an option issued under this
Plan, the total number of such shares repurchased shall be deemed delivered.
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(d)
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The shares of Stock with respect to which
Awards may be made under the Plan shall be: (i) shares currently authorized but unissued;
(ii) to the extent permitted by Applicable Law, shares currently held or acquired by
the Company as treasury shares, including shares purchased in the open market or in private
transactions; or (iii) shares purchased in the open market by a direct or indirect wholly-owned
subsidiary of the Company (as determined by the Chief Executive Officer or the Chief
Financial Officer of the Company). The Company may contribute to the subsidiary or trust
an amount sufficient to accomplish the purchase in the open market of the shares of Stock
to be so acquired (as determined by the Chief Executive Officer or the Chief Financial
Officer of the Company).
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3.2. Adjustments.
In the event of a corporate transaction involving the Company (including, without limitation, any share dividend, share split,
extraordinary cash dividend, recapitalization, reorganization, merger, amalgamation, consolidation, share exchange split-up, spin-off,
sale of assets or subsidiaries, combination or exchange of shares), the Committee shall, in the manner it determines equitable
in its sole discretion, adjust Awards to reflect the transactions. Action by the Committee may include: (i) adjustment of the
number and kind of shares which may be delivered under the Plan; (ii) adjustment of the number and kind of shares subject to outstanding
Awards; (iii) adjustment of the Exercise Price of outstanding Options; and (iv) any other adjustments that the Committee determines
to be equitable (which may include, without limitation, (A) replacement of Awards with other Awards which the Committee determines
have comparable value and which are based on shares of a company resulting from the transaction, and (B) cancellation of the Award
in return for cash payment of the current value of the Award, determined as though the Award is fully vested at the time of payment,
provided that in the case of an Option, the amount of such payment will be the excess of value of the shares of Stock subject
to the Option at the time of the transaction over the Exercise Price). However, in no event shall this Section 3.2 be construed
to permit a modification (including a replacement) of an Option if such modification either: (i) would result in accelerated recognition
of income or imposition of additional tax under Section 409A of the Code; or (ii) would cause the Option subject to the modification
(or cause a replacement Option) to be subject to Section 409A of the Code, provided that the restriction of this clause (ii) shall
not apply to any Option that, at the time it is granted or otherwise, is designated as being deferred compensation subject to
Section 409A of the Code.
3.3. Plan
Limitations. Subject to Section 3.2, the following additional maximums are imposed under the Plan:
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(a)
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The maximum number of shares of Stock that
may be delivered to Participants and their beneficiaries with respect to ISOs granted
under the Plan shall be 1,000 shares of Stock (which number includes all shares of Stock
available for delivery under this Section 3.3(a) since the establishment of the Plan,
determined in accordance with the terms of the Plan); provided, however, that to the
extent that shares of Stock not delivered must be counted against this limit as a condition
of satisfying the rules applicable to ISOs, such rules shall apply to the limit on ISOs
granted under the Plan; [provided, further, that such limit will automatically increase
on January 1 of each year, for a period of not more than ten (10) years, commencing on
January 1 of the year following the year in which the Effective Date occurs and ending
on (and including) January 1, 2029, in an amount equal to four percent (4%) of the total
number of shares of Stock outstanding on the date that this Plan is adopted].
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(b)
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The maximum total annual compensation, including
the value of any Awards made pursuant to this Plan (determined as of the date of grant),
that may be paid or granted to any one Participant who is a member of the Board but who
is not an employee of the Company or a Related Company during any one-year period for
service on the Board shall be $500,000 dollars; provided, that, such limit shall be $750,000
during the first year of service for a member of the Board who is not an employee.
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(c)
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Notwithstanding the provisions of Sections
4.5 and 5.4 of the Plan, the Committee may grant Awards that are not subject to the minimum
vesting limitations of Sections 4.5 (with respect to Options) and of Section 5.4 (with
respect to Full Value Awards) in certain circumstances as determined by the Committee
in its sole discretion.
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SECTION
4
OPTIONS
4.1. Grant
of Options. Subject to the terms and conditions of the Plan, the Administrator, at any time and from time to time, may grant
Options to an Eligible Individual in such amounts as the Administrator, in its sole discretion, will determine. Each Option will
be designated in the Award Agreement as either an ISO or an NQO. Notwithstanding a designation for a grant of Options as ISOs,
however, to the extent that the aggregate Fair Market Value of the shares of Stock with respect to which ISOs are exercisable
for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds
$100,000, such Options will be treated as NQOs. For purposes of this Section 4.1, ISOs will be taken into account in the order
in which they were granted, the Fair Market Value of the shares of Stock will be determined as of the time the Option with respect
to such shares of Stock is granted, and calculation will be performed in accordance with Section 422 of the Code and Treasury
Regulations promulgated thereunder.
4.2. Option
Agreement. Each Award of an Option will be evidenced by an Award Agreement that will specify the date of grant of the Option,
the Exercise Price, the term of the Option, the number of shares of Stock subject to the Option, the exercise restrictions, if
any, applicable to the Option, including the dates upon which the Option is first exercisable in whole and/or part, and such other
terms and conditions as the Administrator, in its sole discretion, may determine.
4.3. Term
of Option. The term of each Option will be stated in the Award Agreement; provided, however, that the term will be no more
than 10 years from the date of grant thereof. In the case of an ISO granted to a Participant who, at the time the ISO is granted,
owns capital stock representing more than 10% of the total combined voting power of all classes of capital stock of the Company
or any Parent or Subsidiary, the term of the ISO will be five years from the date of grant or such shorter term as may be provided
in the Award Agreement.
4.4. Exercise
Price. The Exercise Price shall not be less than 100% of the Fair Market Value of a share of Stock on the date of grant (or,
if greater, the par value, if any, of a share of Stock). In addition, in the case of an ISO granted to an Employee who owns capital
stock representing more than 10% of the voting power of all classes of capital stock of the Company or any Parent or Subsidiary,
the per share Exercise Price will be no less than 110% of the Fair Market Value per share of Stock on the date of grant. Notwithstanding
the foregoing provisions of this Section 4.4, Options may be granted with a per share Exercise Price of less than 100% of
the Fair Market Value per share of Stock on the date of grant pursuant to a transaction described in, and in a manner consistent
with, Section 424(a) of the Code.
4.5. Minimum
Vesting. Notwithstanding the foregoing, and subject to Section 3.3(e), in no event shall an Option granted to any Participant
become exercisable or vested prior to the first anniversary of the date on which it is granted (subject to acceleration of exercisability
and vesting, to the extent permitted by the Committee, in the event of the Participant’s death, disability, Change in Control
or involuntary termination).
4.6. Payment
of Option Exercise Price. The payment of the Exercise Price of an Option granted under this Section 4 shall be subject to
the following:
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(a)
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Subject to the following provisions of this
Section 4.8, the full Exercise Price for shares of Stock purchased upon the exercise
of any Option shall be paid at the time of such exercise (except that, in the case of
an exercise arrangement approved by the Committee and described in Section 4.8(c), payment
may be made as soon as practicable after the exercise).
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(b)
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Subject to Applicable Law, the full Exercise
Price shall be payable in cash, by promissory note, or by tendering, by either actual
delivery of shares or by attestation, shares of Stock acceptable to the Committee (including
shares otherwise distributable pursuant to the exercise of the Option), and valued at
Fair Market Value as of the day of exercise, or in any combination thereof, as determined
by the Committee.
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(c)
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Subject to Applicable Law, if shares are
publicly traded, the Committee may permit a Participant to elect to pay the Exercise
Price upon the exercise of an Option by irrevocably authorizing a third party to sell
shares of Stock (or a sufficient portion of the shares of Stock) acquired upon exercise
of the Option and remit to the Company a sufficient portion of the sale proceeds to pay
the entire Exercise Price and any tax withholding resulting from such exercise.
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4.7. No
Repricing. Except for either adjustments pursuant to Section 3.2 (relating to the adjustment of shares of Stock), or reductions
of the Exercise Price approved by the Company's stockholders, the Exercise Price for any outstanding Option may not be decreased
after the date of grant nor may an outstanding Option granted under the Plan be surrendered to the Company as consideration for
the grant of a replacement Option with a lower Exercise Price. Except as approved by Company’s stockholders, in no event
shall any Option granted under the Plan be surrendered to Company in consideration for a cash payment or the grant of any other
Award if, at the time of such surrender, the Exercise Price of the Option is greater than the then current Fair Market Value of
a share of Stock. In addition, no repricing of an Option shall be permitted without the approval of Company’s stockholders
if such approval is required under the rules of any stock exchange on which Stock is listed.
SECTION
5
FULL VALUE AWARDS
5.1. Grant
of Full Value Award. Subject to the terms and conditions of the Plan, the Administrator, at any time and from time to time,
may grant Full Value Awards to Eligible Individuals in such amounts as the Administrator, in its sole discretion, will determine.
5.2. Full
Value Award Agreement. Each Full Value Award will be evidenced by an Award Agreement that will specify the Period of Restriction,
the number of shares of Stock granted, and such other terms and conditions as the Administrator, in its sole discretion, may determine.
5.3. Conditions.
A Full Value Award may be subject to one or more of the following, as determined by the Committee:
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(a)
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The grant shall be in consideration of a
Participant’s previously performed services, or surrender of other compensation
that may be due.
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(b)
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The grant shall be contingent on the achievement
of performance or other objectives during a specified period.
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(c)
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The grant shall be subject to a risk of
forfeiture or other restrictions that will lapse upon the achievement of one or more
goals relating to completion of service by the Participant, or achievement of performance
or other objectives.
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The grant of Full Value Awards may also be subject to such
other conditions, restrictions and contingencies, as determined by the Committee.
5.4. Minimum
Vesting.
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(a)
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Notwithstanding the foregoing, and subject
to Section 3.3(e), if a Participant’s right to become vested in a Full Value Award
is conditioned on the completion of a specified period of service with the Company or
the Related Companies, without achievement of performance targets or other performance
objectives (whether or not related to performance measures) being required as a condition
of vesting, and without it being granted in lieu of other compensation, then the required
period of service for vesting shall be not less than one year (subject, to the extent
provided by the Committee, to acceleration of vesting in the event of the Participant’s
death, disability, Change in Control or involuntary termination). The foregoing requirements
shall not apply to grants that are a form of payment of earned performance awards or
other incentive compensation.
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(b)
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Notwithstanding the foregoing, and subject
to Section 3.3(e), if a Participant’s right to become vested in a Full Value Award
is conditioned on the achievement of performance targets or other performance objectives
(whether or not related to performance measures and whether or not such Full Value Award
is designated as “Performance-Based Compensation”), then the required performance
period for determining the achievement of such performance targets or other performance
objectives for vesting shall be not less than one year (subject, to the extent provided
by the Committee, to acceleration of vesting in the event of the Participant’s
death, disability, Change in Control or involuntary termination).
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SECTION
6
CHANGE IN CONTROL
6.1. Change
in Control.. Subject to the provisions of Section 3.2 and the authority of the Committee to take the actions permitted pursuant
to Section 6.2, the occurrence of a Change in Control shall have the effect, if any, with respect to any Award as set forth in
the Award Agreement or, to the extent not prohibited by the Plan or the Award Agreement, as provided by the Committee.
6.2. Committee
Actions On A Change in Control. On a Change in Control, if the Plan is terminated by the Company or its successor without
provision for the continuation of outstanding Awards hereunder, the Committee may cancel any outstanding Awards in return for
cash payment of the current value of the Award, determined with the Award fully vested at the time of payment, provided that in
the case of an Option, the amount of such payment will be the excess of value of the shares of Stock subject to the Option at
the time of the transaction over the Exercise Price; provided, further, that in the case of an Option, such Option will be cancelled
with no payment if, as of the Change in Control, the value of the shares of Stock subject to the Option at the time of the transaction
are equal to or less than the Exercise Price. However, in no event shall this Section 6.2 be construed to permit a payment if
such payment would result in accelerated recognition of income or imposition of additional tax under Section 409A of the Code.
SECTION
7
COMMITTEE
7.1. Administration.
The authority to control and manage the operation and administration of the Plan shall be vested in a committee (the “Committee”)
in accordance with this Section 7. The Committee shall be selected by the Board, and shall consist of two or more members of the
Board. Unless otherwise provided by the Board, the Compensation Committee of the Board shall serve as the Committee. As a committee
of the Board, the Committee is subject to the overview of the Board. If the Committee does not exist, or for any other reason
determined by the Board, and to the extent not prohibited by Applicable Law, the Board may take any action under the Plan that
would otherwise be the responsibility of the Committee.
7.2. Selection
of Committee. So long as the Company is subject to Section 16 of the Exchange Act, the Committee shall be selected by the
Board and shall consist of not fewer than two members of the Board or such greater number as may be required for compliance with
Rule 16b-3 issued under the Exchange Act and shall be comprised of persons who are independent for purposes of applicable stock
exchange listing requirements and who would meet the requirements of a “non-employee director” within the meaning
of Rule 16b-3 under the Securities Exchange Act of 1934.
7.3. Powers
of Committee. The Committee’s administration of the Plan shall be subject to the following:
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(a)
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Subject to the provisions of the Plan, the
Committee will have the authority and discretion to select individuals who shall be Eligible
Individuals and who, therefore, are eligible to receive Awards under the Plan. The Committee
shall have the authority to determine the time or times of receipt of Awards, to determine
the types of Awards and the number of shares of Stock covered by the Awards, to establish
the terms, conditions, performance targets, restrictions, and other provisions of such
Awards, to cancel or suspend Awards, and to accelerate the exercisability or vesting
of any Award under circumstances designated by it. In making such Award determinations,
the Committee may take into account the nature of services rendered by the respective
employee, the individual’s present and potential contribution to the Company’s
or a Related Company’s success and such other factors as the Committee deems relevant.
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(b)
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To the extent that the Committee determines
that the restrictions imposed by the Plan preclude the achievement of the material purposes
of the Awards in jurisdictions outside the United States, the Committee will have the
authority and discretion to modify those restrictions as the Committee determines to
be necessary or appropriate to conform to applicable requirements or practices of jurisdictions
outside of the United States.
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(c)
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The Committee will have the authority and
discretion to interpret the Plan, to establish, amend, and rescind any rules and regulations
relating to the Plan, to determine the terms and conditions of any Award Agreement made
pursuant to the Plan, and to make all other determinations that may be necessary or advisable
for the administration of the Plan.
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(d)
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Any interpretation of the Plan by the Committee
and any decision made by it under the Plan is final and binding on all persons.
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(e)
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In controlling and managing the operation
and administration of the Plan, the Committee shall take action in a manner that conforms
to applicable corporate law.
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(f)
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Notwithstanding any other provision of the
Plan, no benefit shall be distributed under the Plan to any person unless the Committee,
in its sole discretion, determines that such person is entitled to benefits under the
Plan.
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7.4. Delegation
by Committee. Except to the extent prohibited by Applicable Law, the Committee may allocate all or any portion of its responsibilities
and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any person
or persons selected by it. Any such allocation or delegation may be revoked by the Committee at any time.
7.5. Information
to be Furnished to Committee. The Company, Subsidiaries and any applicable Related Company shall furnish the Committee with
such data and information as it determines may be required for it to discharge its duties. The records of the Company, Subsidiaries
and any applicable Related Company as to an employee’s or Participant’s employment (or other provision of services),
termination of employment (or cessation of the provision of services), leave of absence, reemployment and compensation shall be
conclusive on all persons unless determined to be incorrect. Participants and other persons entitled to benefits under the Plan
must furnish the Committee such evidence, data or information as the Committee considers desirable to carry out the terms of the
Plan.
7.6. Liability
and Indemnification of Committee. No member or authorized delegate of the Committee shall be liable to any person for any
action taken or omitted in connection with the administration of the Plan unless attributable to his own fraud or willful misconduct;
nor shall the Company or any Related Company be liable to any person for any such action unless attributable to fraud or willful
misconduct on the part of a director or employee of the Company or Related Company. The Committee, the individual members thereof,
and persons acting as the authorized delegates of the Committee under the Plan, shall be indemnified by the Company against any
and all liabilities, losses, costs and expenses (including legal fees and expenses) of whatsoever kind and nature which may be
imposed on, incurred by or asserted against the Committee or its members or authorized delegates by reason of the performance
of a Committee function if the Committee or its members or authorized delegates did not act dishonestly or in willful violation
of the law or regulation under which such liability, loss, cost or expense arises. This indemnification shall not duplicate but
may supplement any coverage available under any applicable insurance.
SECTION
8
AMENDMENT AND TERMINATION
The Board may, at any time, amend or
terminate the Plan, and the Board or the Committee may amend any Award Agreement, provided that no amendment or termination may,
in the absence of written consent to the change by the affected Participant (or, if the Participant is not then living, the affected
beneficiary), adversely affect the rights of any Participant or beneficiary under any Award granted under the Plan prior to the
date such amendment is adopted by the Board (or the Committee if applicable); and further provided that adjustments pursuant to
Section 3.2 shall not be subject to the foregoing limitations of this Section 8; and further provided that the provisions of Section
4.7 (relating to Option repricing) cannot be amended unless the amendment is approved by the Company's stockholders. Approval
by the Company’s stockholders will be required for any material revision to the terms of the Plan, with the Committee’s
determination of “material revision” to take into account the exemptions under applicable stock exchange rules. No
amendment or termination shall be adopted or effective if it would result in accelerated recognition of income or imposition of
additional tax under Section 409A of the Code or, except as otherwise provided in the amendment, would cause amounts that were
not otherwise subject to Section 409A of the Code to become subject to Section 409A of the Code.
SECTION
9
general provisions
9.1. General
Restrictions. Delivery of shares of Stock or other amounts under the Plan shall be subject to the following:
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(a)
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Notwithstanding any other provision of the
Plan, the Company shall have no obligation to recognize an exercise of an Option or deliver
any shares of Stock or make any other distribution of benefits under the Plan unless
such exercise, delivery or distribution complies with all Applicable Laws (including,
without limitation, the requirements of the United States Securities Act of 1933 and
the securities laws of any other applicable jurisdiction), and the applicable requirements
of any securities exchange or similar entity or other regulatory authority with respect
to the issue of shares and securities by the Company.
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(b)
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To the extent that the Plan provides for
issuance of share certificates to reflect the issuance of shares of Stock, the issuance
may be effected on a non-certificated basis, to the extent not prohibited by Applicable
Law, the By-laws of the Company.
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(c)
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To the extent provided by the Committee,
any Award may be settled in cash rather than shares of Stock.
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9.2. Tax
Withholding. All distributions under the Plan are subject to withholding of all applicable taxes, and the Committee may condition
the delivery of any shares of Stock or other benefits under the Plan on satisfaction of the applicable withholding obligations.
Except as otherwise provided by the Committee and subject to Applicable Law, such withholding obligations may be satisfied (i)
through cash payment by the Participant; (ii) through the surrender of shares of Stock which the Participant already owns; or
(iii) through the surrender of shares of Stock to which the Participant is otherwise entitled under the Plan (including shares
otherwise distributable pursuant to the Award); provided, however, that such shares of Stock under this clause (iii) may be used
to satisfy not more than the maximum individual tax rate for the Participant in applicable jurisdiction for such Participant (based
on the applicable rates of the relevant tax authorities (for example, federal, state, and local), including the Participant’s
share of payroll or similar taxes, as provided in tax law, regulations, or the authority’s administrative practices, not
to exceed the highest statutory rate in that jurisdiction, even if that rate exceeds the highest rate that may be applicable to
the specific Participant).
9.3. Grant
and Use of Awards. In the discretion of the Committee, an Eligible Individual may be granted any Award permitted under the
provisions of the Plan, and more than one Award may be granted to an Eligible Individual. Subject to Section 4.7 (relating to
repricing), Awards may be granted as alternatives to or replacement of awards granted or outstanding under the Plan, or any other
plan or arrangement of the Company or a Subsidiary or a Related Company (including a plan or arrangement of a business or entity,
all or a portion of which is acquired by the Company or a Subsidiary or a Related Company). Subject to the overall limitation
on the number of shares of Stock that may be delivered under the Plan, the Committee may use available shares of Stock as the
form of payment for compensation, grants or rights earned or due under any other compensation plans or arrangements of the Company
or a Subsidiary or a Related Company, including the plans and arrangements of the Company or a Subsidiary or a Related Company
assumed in business combinations. Notwithstanding the provisions of Section 4.4, Options granted under the Plan in replacement
for awards under plans and arrangements of the Company or a Subsidiary or a Related Company assumed in business combinations may
provide for Exercise Prices that are less than the Fair Market Value of the shares of Stock at the time of the replacement grants,
if the Committee determines that such Exercise Price is appropriate to preserve the economic benefit of the award. The provisions
of this Section shall be subject to the provisions of Section 9.13.
9.4. Dividends
and Dividend Equivalents. An Award (other than an Option) may provide the Participant with the right to receive dividend or
dividend equivalent payments with respect to shares of Stock subject to the Award; provided, however, that no dividend or dividend
equivalents granted in relation to Full Value Awards that are subject to vesting shall be settled prior to the date that such
Full Value Award (or applicable portion thereof) becomes vested and is settled. Any such settlements, and any such crediting of
dividends or dividend equivalents or reinvestment in shares of Stock, will be subject to the Company's By-laws as well as Applicable
Law and further may be subject to such conditions, restrictions and contingencies as the Committee shall establish, including
the reinvestment of such credited amounts in share of Stock equivalents. The provisions of this Section shall be subject to the
provisions of Section 9.13.
9.5. Settlement
of Awards. The obligation to make payments and distributions with respect to Awards may be satisfied through cash payments,
the delivery of shares of Stock, the granting of replacement Awards, or combination thereof as the Committee shall determine.
Satisfaction of any such obligations under an Award, which is sometimes referred to as “settlement” of the Award,
may be subject to such conditions, restrictions and contingencies as the Committee shall determine. The Committee may permit or
require the deferral of any Award payment or distribution, subject to such rules and procedures as it may establish, which may
include provisions for the payment or crediting of interest or dividend equivalents, and may include converting such credits into
deferred share of Stock equivalents. Except for Options designated at the time of grant or otherwise as intended to be subject
to Section 409A of the Code, this Section 9.5 shall not be construed to permit the deferred settlement of Options, if such settlement
would result in deferral of compensation under Treas. Reg. §1.409A-1(b)(5)(i)(A)(3) (except as permitted in Sections (i)
and (ii) of that section). Each Subsidiary shall be liable for payment of cash due under the Plan with respect to any Participant
to the extent that such benefits are attributable to the services rendered for that Subsidiary by the Participant. Any disputes
relating to liability of a Subsidiary for cash payments shall be resolved by the Committee. The provisions of this Section shall
be subject to the provisions of Section 9.13.
9.6. Transferability.
Except as otherwise provided by the Committee, Awards under the Plan are not transferable except as designated by the Participant
by will or by the laws of descent and distribution.
9.7. Form
and Time of Elections. Unless otherwise specified herein, each election required or permitted to be made by any Participant
or other person entitled to benefits under the Plan, and any permitted modification, or revocation thereof, shall be in writing
filed with the Committee at such times, in such form, and subject to such restrictions and limitations, not inconsistent with
the terms of the Plan, as the Committee shall require.
9.8. Agreement
With Company. An Award under the Plan shall be subject to such terms and conditions, not inconsistent with the Plan, as the
Committee shall, in its sole discretion, prescribe. The terms and conditions of any Award to any Participant shall be reflected
in such form of written (including electronic) document as is determined by the Committee. A copy of such document shall be provided
to the Participant, and the Committee may, but need not require that the Participant sign a copy of such document. Such document
is referred to in the Plan as an “Award Agreement” regardless of whether any Participant signature is required.
9.9. Action
by Company or Subsidiary. Any action required or permitted to be taken by the Company or any Subsidiary or Related Company
shall be by resolution of its board of directors, or by action of one or more members of the board (including a committee of the
board) who are duly authorized to act for the board, or (except to the extent prohibited by Applicable Law or applicable rules
of any stock exchange) by a duly authorized officer of such company.
9.10. Gender
and Number. Where the context admits, words in any gender shall include any other gender, words in the singular shall include
the plural and the plural shall include the singular.
9.11. Limitation
of Implied Rights.
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(a)
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Neither a Participant nor any other person
shall, by reason of participation in the Plan, acquire any right in or title to any assets,
funds or property of the Company or any Subsidiary or Related Company whatsoever, including,
without limitation, any specific funds, assets, or other property which the Company or
any Subsidiary or Related Company, in its sole discretion, may set aside in anticipation
of a liability under the Plan. A Participant shall have only a contractual right to the
shares of Stock or amounts, if any, payable under the Plan, unsecured by any assets of
the Company or any Subsidiary or Related Company, and nothing contained in the Plan shall
constitute a guarantee that the assets of the Company or any Subsidiary or Related Company
shall be sufficient to pay any benefits to any person.
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(b)
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The Plan does not constitute a contract
of employment, and selection as a Participant will not give any participating employee
or other individual the right to be retained in the employ of the Company or any Subsidiary
or Related Company or the right to continue to provide services to the Company or any
Subsidiary or Related Company, nor any right or claim to any benefit under the Plan,
unless such right or claim has specifically accrued under the terms of the Plan. Except
as otherwise provided in the Plan, no Award under the Plan shall confer upon the holder
thereof any rights as a stockholder of the Company prior to the date on which the individual
fulfills all conditions for receipt of such rights and is registered in the Company's
Register of share of stockholders.
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(c)
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All Stock and shares issued under any Award
or otherwise are to be held subject to the provisions of the Company's By-laws and each
Participant is deemed to agree to be bound by the terms of the Company's By-laws as they
stand at the time of issue of any shares of Stock under the Plan.
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9.12. Evidence.
Evidence required of anyone under the Plan may be by certificate, affidavit, document or other information which the person acting
on it considers pertinent and reliable, and signed, made or presented by the proper party or parties.
9.13. Limitations
under Section 409A. The provisions of the Plan shall be subject to the following:
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(a)
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Awards will be designed and operated in
such a manner that they are either exempt from the application of, or comply with, the
requirements of Section 409A of the Code, except as otherwise determined in the sole
discretion of the Administrator. The Plan and each Award Agreement under the Plan is
intended to meet the requirements of Section 409A of the Code and will be construed
and interpreted in accordance with such intent, except as otherwise determined in the
sole discretion of the Administrator. To the extent that an Award or payment, or the
settlement or deferral thereof, is subject to Section 409A of the Code the Award will
be granted, paid, settled or deferred in a manner that will meet the requirements of
Section 409A of the Code, such that the grant, payment, settlement or deferral will not
be subject to the additional tax or interest applicable under Section 409A of the Code.
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(b)
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Neither Section 9.3 nor any other provision
of the Plan shall be construed to permit the grant of an Option if such action would
cause the Option being granted or the option or stock appreciation right being replaced
to be subject to Section 409A of the Code, provided that this Section (b) shall not apply
to any Option (or option or stock appreciation right granted under another plan) being
replaced that, at the time it is granted or otherwise, is designated as being deferred
compensation subject to Section 409A of the Code.
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(c)
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Except with respect to an Option that, at
the time it is granted or otherwise, is designated as being deferred compensation subject
to Section 409A of the Code, no Option shall condition the receipt of dividends with
respect to an Option on the exercise of such Award, or otherwise provide for payment
of such dividends in a manner that would cause the payment to be treated as an offset
to or reduction of the Exercise Price of the Option pursuant Treas. Reg. §1.409A-1(b)(5)(i)(E).
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(d)
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The Plan shall not be construed to permit
a modification of an Award, or to permit the payment of a dividend or dividend equivalent,
if such actions would result in accelerated recognition of taxable income or imposition
of additional tax under Section 409A of the Code.
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CHARDAN HEALTHCARE ACQUISITION CORP.
2019 OMNIBUS LONG-TERM INCENTIVE
PLAN
ISRAELI APPENDIX
This Israeli Appendix (the “Appendix”)
to the 2019 Omnibus Long-Term Incentive Plan (as amended from time to time, the “Plan”) of CHARDAN HEALTHCARE
ACQUISITION CORP. (the “Company”) shall apply only to Participants (as defined in the Plan) who are, or are
deemed to be, residents of the State of Israel for Israeli tax purposes. This Appendix is made pursuant to Section 1.3 of the
Plan.
1.1. The Committee, in its discretion,
may grant Awards to eligible Participants and shall determine whether such Awards intended to be 102 Awards or 3(9) Awards. Each
Award shall be evidenced by an Award Agreement, which shall expressly identify the Award type, and be in such form and contain
such provisions, as the Committee shall from time to time deem appropriate.
1.2. The Plan shall apply to any
Awards granted pursuant to this Appendix, provided, that the provisions of this Appendix shall supersede and govern in the case
of any inconsistency or conflict, either explicit or implied, arising between the provisions of this Appendix and the Plan.
1.3. Unless otherwise defined in
this Appendix, capitalized terms contained herein shall have the same meanings given to them in the Plan.
2.1. “3(9) Award”
means any Award representing a right to purchase shares of Common Stock granted by the Company to any Participant who is not an
Employee pursuant to Section 3(9) of the Ordinance.
2.2. “102 Award”
means any Award intended to qualify (as set forth in the Award Agreement) and which qualifies under Section 102, provided it is
settled only in shares of Common Stock.
2.3. “102 Capital Gain
Track Award” means any Award granted by the Company to an Employee pursuant to Section 102(b)(2) or (3) (as applicable)
of the Ordinance under the capital gain track.
2.4. “102 Non-Trustee
Award” means any Award granted by the Company to an Employee pursuant to Section 102(c) of the Ordinance without a Trustee.
2.5. “102 Ordinary Income
Track Award” means any Award granted by the Company to an Employee pursuant to Section 102(b)(1) of the Ordinance under
the ordinary income track.
2.6. “102 Trustee Awards”
means, collectively, 102 Capital Gain Track Awards and 102 Ordinary Income Track Awards.
2.7. “Affiliate”
means, for purpose of 102 Trustee Award, an “employing company” within the meaning and subject to the conditions of
Section 102(a) of the Ordinance.
2.8. “Applicable Law”
shall mean any applicable law, rule, regulation, statute, pronouncement, policy, interpretation, judgment, order or decree of
any federal, provincial, state or local governmental, regulatory or adjudicative authority or agency, of any jurisdiction, and
the rules and regulations of any stock exchange, over-the-counter market or trading system on which the common stock of the Company
are then traded or listed.
2.9. “Controlling Stockholder”
means as to such term is defined in Section 32(9) of the Ordinance.
2.10. “Election”
as defined in Section 3.2 below.
2.11. “Employee”
means an “employee” within the meaning of Section 102(a) of the Ordinance (which as of the date of the adoption of
this Appendix means (i) an individual employed by an Israeli company being an Affiliate, and (ii) an individual who is serving
and is engaged personally (and not through an entity) as an “office holder” by an Affiliate, excluding, in any event,
Controlling Stockholders).
2.12. “ITA”
means the Israel Tax Authority.
2.13. “Ordinance”
means the Israeli Income Tax Ordinance (New Version), 1961, including the Rules and any other regulations, rules, orders or procedures
promulgated thereunder, as may be amended or replaced from time to time.
2.14. “Required Holding
Period” as defined in Section 3.5.1 below.
2.15. “Rules”
means the Income Tax Rules (Tax Reliefs in Stock Issuance to Employees) 5763-2003.
2.16. “Section 102”
means Section 102 of the Ordinance.
2.17. “Trust Agreement”
means the agreement to be signed between the Company, an Affiliate and the Trustee for the purposes of Section 102.
2.18. “Trustee”
means the trustee appointed by the Company’s Board of Directors and/or by the Committee to hold the Awards and approved
by the ITA.
2.19. “Withholding Obligations”
as defined in Section 5.5 below.
3.1. Tracks. Awards granted
pursuant to this Section 3 are intended to be granted as either 102 Capital Gain Track Awards or 102 Ordinary Income Track Awards.
102 Trustee Awards shall be granted subject to the special terms and conditions contained in this Section 3 and the general terms
and conditions of the Plan, except for any provisions of the Plan applying to Awards under different tax laws or regulations.
3.2. Election of Track.
Subject to Applicable Law, the Company may grant only one type of 102 Trustee Award at any given time to all Participants who
are to be granted 102 Trustee Awards pursuant to this Appendix, and shall file an election with the ITA regarding the type of
102 Trustee Award it elects to grant before the date of grant of any 102 Trustee Award (the “Election”). Such
Election shall also apply to any other securities received by any Participant as a result of holding the 102 Trustee Awards. The
Company may change the type of 102 Trustee Award that it elects to grant only after the expiration of at least 12 months from
the end of the year in which the first grant was made in accordance with the previous Election, or as otherwise provided by Applicable
Law. Any Election shall not prevent the Company from granting 102 Non-Trustee Awards.
3.3. Eligibility for Awards.
Subject to Applicable Law, 102 Awards may only be granted to Employees. Such 102 Awards may either be granted to a Trustee or
granted under Section 102 without a Trustee.
3.4. 102 Award Grant Date.
(a) Each 102 Award will be deemed
granted on the date determined by the Committee, subject to the provisions of the Plan, provided that (i) the Participant has
signed all documents required by the Company or pursuant to Applicable Law, and (ii) with respect to any 102 Trustee Award, the
Company has provided all applicable documents to the Trustee in accordance with the guidelines published by the ITA.
(b) Unless otherwise permitted by
the Ordinance, any grants of 102 Trustee Awards that are made on or after the date of the adoption of the Plan and this Appendix
or an amendment to the Plan or this Appendix, as the case may be, that may become effective only at the expiration of thirty (30)
days after the filing of the Plan and this Appendix or any amendment thereof (as the case may be) with the ITA in accordance with
the Ordinance shall be conditional upon the expiration of such 30-day period, and such condition shall be read and is incorporated
by reference into any corporate resolutions approving such grants and into any Award Agreement evidencing such grants (whether
or not explicitly referring to such condition), and the date of grant shall be at the expiration of such 30-day period, whether
or not the date of grant indicated therein corresponds with this Section. In the case of any contradiction, this provision and
the date of grant determined pursuant hereto shall supersede and be deemed to amend any date of grant indicated in any corporate
resolution or Award Agreement. Nevertheless, this 30-day period may be waived subject to a special tax ruling to be obtained from
the ITA and pursuant to its terms, or may not apply to any exchange of equity pursuant to a special tax ruling and its terms.
3.5. 102 Trustee Awards.
(a) Each 102 Trustee Award, each
share of Common Stock issued pursuant to the grant, exercise or vesting of any 102 Trustee Award and any rights granted thereunder,
shall be allocated or issued to and registered in the name of the Trustee and shall be held in trust or controlled by the Trustee
(pursuant to an approval from the ITA) for the benefit of the Participant for the requisite period prescribed by the Ordinance
or such longer period as set by the Committee (the “Required Holding Period”). In the event that the requirements
under Section 102 to qualify an Award as a 102 Trustee Award are not met, then the Award may be treated as a 102 Non-Trustee Award
or 3(9) Award (as determined by the Company), all in accordance with the provisions of the Ordinance. After the expiration of
the Required Holding Period, the Trustee may release such 102 Trustee Awards and any such shares of Common Stock, provided that
(i) the Trustee has received an acknowledgment from the ITA that the Participant has paid any applicable taxes due pursuant to
the Ordinance, or (ii) the Trustee and/or the Company and/or the Affiliate withhold(s) all applicable taxes and compulsory payments
due pursuant to the Ordinance arising from the 102 Trustee Awards and/or any shares of Common Stock issued upon exercise or (if
applicable) vesting of such 102 Trustee Awards. The Trustee shall not release any 102 Trustee Awards or shares of Common Stock
issued upon exercise or (if applicable) vesting thereof, or any rights received with respect to such Awards, prior to the payment
in full of the Participant’s tax and compulsory payments arising from such 102 Trustee Awards and/or shares of Common Stock
or the withholding referred to in (ii) above.
(b) Each 102 Trustee Award shall
be subject to the relevant terms of the Ordinance, the Rules and any determinations, rulings or approvals issued by the ITA, which
shall be deemed an integral part of the 102 Trustee Awards and shall prevail over any term contained in the Plan, this Appendix
or the Award Agreement that is not consistent therewith. Any provision of the Ordinance, the Rules and any determinations, rulings
or approvals by the ITA not expressly specified in the Plan, this Appendix or Award Agreement that are necessary to receive or
maintain any tax benefit pursuant to Section 102 shall be binding on the Participant. The Participant granted a 102 Trustee Award
shall comply with the Ordinance and the terms and conditions of the Trust Agreement entered into between the Company and the Trustee.
The Participant shall execute any and all documents that the Company and/or the Affiliate and/or the Trustee determine from time
to time to be necessary in order to comply with the Ordinance and the Rules.
(c) During the Required Holding
Period, the Participant shall not release from trust or sell, assign, transfer or give as collateral, the shares of Common Stock
issuable upon the exercise or (if applicable) vesting of a 102 Trustee Award and/or any securities issued or distributed with
respect thereto, until the expiration of the Required Holding Period. Notwithstanding the above, if any such sale, release or
other action occurs during the Required Holding Period it may result in adverse tax consequences to the Participant under Section
102 and the Rules, which shall apply to and shall be borne solely by such Participant. Subject to the foregoing, the Trustee may,
pursuant to a written request from the Participant, but subject to the terms of the Plan and this Appendix, release and transfer
such shares of Common Stock to a designated third party, provided that both of the following conditions have been fulfilled prior
to such release or transfer: (i) payment has been made to the ITA of all taxes and compulsory payments required to be paid upon
the release and transfer of the shares of Common Stock, and confirmation of such payment has been received by the Trustee and
the Company, and (ii) the Trustee has received written confirmation from the Company that all requirements for such release and
transfer have been fulfilled according to the terms of the Company’s corporate documents, any agreement governing the shares
of Common Stock, the Plan, this Appendix, the Award Agreement and any Applicable Law.
(d) If a 102 Trustee Award is exercised
or (if applicable) vested, the shares of Common Stock issued upon such exercise or (if applicable) vesting shall be issued in
the name of the Trustee for the benefit of the Participant, or shall be deposited with the Trustee, or be subject to the Trustee’s
control, if approved by the ITA.
(e) Upon or after receipt of a 102
Trustee Award, if required, the Participant may be required to sign an undertaking to release the Trustee from any liability with
respect to any action or decision duly taken and executed in good faith by the Trustee in relation to the Plan, this Appendix,
or any 102 Trustee Awards granted to such Participant hereunder.
3.6. 102 Non-Trustee Awards.
The foregoing provisions of this Section 3 relating to 102 Trustee Awards shall not apply with respect to 102 Non-Trustee Awards,
which shall, however, be subject to the relevant provisions of Section 102 and the applicable Rules. The Committee may determine
that 102 Non-Trustee Awards, the shares of Common Stock issuable upon the exercise or (if applicable) vesting of a 102 Non-Trustee
Award and/or any securities issued or distributed with respect thereto, shall be allocated or issued to the Trustee, who shall
hold such 102 Non-Trustee Award and all accrued rights thereon (if any) in trust for the benefit of the Participant and/or the
Company, as the case may be, until the full payment of tax arising from the 102 Non-Trustee Awards, the shares of Common Stock
issuable upon the exercise or (if applicable) vesting of a 102 Non-Trustee Award and/or any securities issued or distributed with
respect thereto. The Company may choose, alternatively, to require the Participant to provide the Company with a guarantee or
other security, to the satisfaction of each of the Trustee and the Company, until the full payment of the applicable taxes.
3.7. Written Participant Undertaking.
With respect to any 102 Trustee Award, as required by Section 102 and the Rules, by virtue of the receipt of such Award, the Participant
is deemed to have undertaken and confirmed in writing the following (and such undertaking is deemed incorporated into any documents
signed by the Participant in connection with the employment or service of the Participant and/or the grant of such Award). The
following written undertaking shall be deemed to apply and relate to all 102 Trustee Awards granted to the Participant, whether
under the Plan and this Appendix or other plans maintained by the Company, and whether prior to or after the date hereof:
(a) The Participant shall comply
with all terms and conditions set forth in Section 102 with regard to the “Capital Gain Track” or the “Ordinary
Income Track”, as applicable, and the applicable rules and regulations promulgated thereunder, as amended from time to time;
(b) The Participant is familiar
with, and understands the provisions of, Section 102 in general, and the tax arrangement under the “Capital Gain Track”
or the “Ordinary Income Track” in particular, and its tax consequences; the Participant agrees that the 102 Trustee
Awards and shares of Common Stock that may be issued upon exercise or (if applicable) vesting of the 102 Trustee Awards (or otherwise
in relation to the Awards), will be held by a trustee appointed pursuant to Section 102 for at least the duration of the "Holding
Period" (as such term is defined in Section 102) under the “Capital Gain Track” or the “Ordinary Income
Track”, as applicable. The Participant understands that any release of such 102 Trustee Awards or shares of Common Stock
from trust, or any sale of the shares of Common Stock prior to the termination of the Holding Period, as defined above, will result
in taxation at the marginal tax rate, in addition to deductions of appropriate social security, health tax contributions or other
compulsory payments; and
(c) The Participant agrees to the
trust deed signed between the Company, his employing company and the trustee appointed pursuant to Section 102.
4.1. Awards granted pursuant to
this Section 4 are intended to constitute 3(9) Awards and shall be granted subject to the general terms and conditions of the
Plan, except for any provisions of the Plan applying to Awards under different tax laws or regulations. In the event of any inconsistency
or contradictions between the provisions of this Section 4 and the other terms of the Plan, this Section 4 shall prevail.
4.2. To the extent required by
the Ordinance or the ITA or otherwise deemed by the Committee to be advisable, the 3(9) Awards and/or any shares of Common Stock
or other securities issued or distributed with respect thereto granted pursuant to the Plan and this Appendix shall be issued
to a trustee nominated by the Committee in accordance with the provisions of the Ordinance. In such event, the trustee shall hold
such Awards and/or any shares of Common Stock or other securities issued or distributed with respect thereto in trust, until exercised
by the Participant or (if applicable) vested, and the full payment of tax arising therefrom, pursuant to the Company’s instructions
from time to time as set forth in a trust agreement, which will have been entered into between the Company and the trustee. If
determined by the Committee, and subject to such trust agreement, the Trustee shall be responsible for withholding any taxes to
which a Participant may become liable upon issuance of shares of Common Stock, whether due to the exercise or (if applicable)
vesting of Awards.
4.3. Shares of Common Stock pursuant
to a 3(9) Award shall not be issued, unless the Participant delivers to the Company payment in cash or by bank check or such other
form acceptable to the Committee of all withholding taxes due, if any, on account of the Participant acquiring shares of Common
Stock under the Award or the Participant provides other assurance satisfactory to the Committee of the payment of those withholding
taxes.
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5.
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AGREEMENT REGARDING TAXES; DISCLAIMER
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5.1. If the Committee shall so
require, as a condition of exercise of an Award or the release of shares of Common Stock by the Trustee, a Participant shall agree
that, no later than the date of such occurrence, the Participant will pay to the Company (or the Trustee, as applicable) or make
arrangements satisfactory to the Committee and the Trustee (if applicable) regarding payment of any applicable taxes and compulsory
payments of any kind required by Applicable Law to be withheld or paid.
5.2. TAX LIABILITY. ALL
TAX CONSEQUENCES UNDER ANY APPLICABLE LAW WHICH MAY ARISE FROM THE GRANT OF ANY AWARDS OR THE EXERCISE THEREOF, THE SALE OR DISPOSITION
OF ANY SHARES OF COMMON STOCK GRANTED HEREUNDER OR ISSUED UPON EXERCISE OR (IF APPLICABLE) VESTING OF ANY AWARD, THE ASSUMPTION,
SUBSTITUTION, CANCELLATION OR PAYMENT IN LIEU OF AWARDS OR FROM ANY OTHER ACTION IN CONNECTION WITH THE FOREGOING (INCLUDING WITHOUT
LIMITATION ANY TAXES AND COMPULSORY PAYMENTS, SUCH AS SOCIAL SECURITY OR HEALTH TAX PAYABLE BY THE PARTICIPANT OR THE COMPANY
IN CONNECTION THEREWITH) SHALL BE BORNE AND PAID SOLELY BY THE PARTICIPANT, AND THE PARTICIPANT SHALL INDEMNIFY THE COMPANY, THE
AFFILIATE AND THE TRUSTEE, AND SHALL HOLD THEM HARMLESS AGAINST AND FROM ANY LIABILITY FOR ANY SUCH TAX OR PAYMENT OR ANY PENALTY,
INTEREST OR INDEXATION THEREON. EACH PARTICIPANT AGREES TO, AND UNDERTAKES TO COMPLY WITH, ANY RULING, SETTLEMENT, CLOSING AGREEMENT
OR OTHER SIMILAR AGREEMENT OR ARRANGEMENT WITH ANY TAX AUTHORITY IN CONNECTION WITH THE FOREGOING WHICH IS APPROVED BY THE COMPANY.
5.3. NO TAX ADVICE. THE
PARTICIPANT IS ADVISED TO CONSULT WITH A TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF RECEIVING, EXERCISING OR DISPOSING
OF AWARDS HEREUNDER. THE COMPANY DOES NOT ASSUME ANY RESPONSIBILITY TO ADVISE THE PARTICIPANT ON SUCH MATTERS, WHICH SHALL REMAIN
SOLELY THE RESPONSIBILITY OF THE PARTICIPANT.
5.4. TAX TREATMENT. THE
COMPANY DOES NOT UNDERTAKE OR ASSUME ANY LIABILITY OR RESPONSIBILITY TO THE EFFECT THAT ANY AWARD SHALL QUALIFY WITH ANY PARTICULAR
TAX REGIME OR RULES APPLYING TO PARTICULAR TAX TREATMENT, OR BENEFIT FROM ANY PARTICULAR TAX TREATMENT OR TAX ADVANTAGE OF ANY
TYPE AND THE COMPANY SHALL BEAR NO LIABILITY IN CONNECTION WITH THE MANNER IN WHICH ANY AWARD IS EVENTUALLY TREATED FOR TAX PURPOSES,
REGARDLESS OF WHETHER THE AWARD WAS GRANTED OR WAS INTENDED TO QUALIFY UNDER ANY PARTICULAR TAX REGIME OR TREATMENT. THIS PROVISION
SHALL SUPERSEDE ANY DESIGNATION OF AWARDS OR TAX QUALIFICATION INDICATED IN ANY CORPORATE RESOLUTION OR AWARD AGREEMENT, WHICH
SHALL AT ALL TIMES BE SUBJECT TO THE REQUIREMENTS OF APPLICABLE LAW. THE COMPANY DOES NOT UNDERTAKE AND SHALL NOT BE REQUIRED
TO TAKE ANY ACTION IN ORDER TO QUALIFY ANY AWARD WITH THE REQUIREMENTS OF ANY PARTICULAR TAX TREATMENT AND NO INDICATION IN ANY
DOCUMENT TO THE EFFECT THAT ANY AWARD IS INTENDED TO QUALIFY FOR ANY TAX TREATMENT SHALL IMPLY SUCH AN UNDERTAKING. NO ASSURANCE
IS MADE BY THE COMPANY OR THE AFFILIATE THAT ANY PARTICULAR TAX TREATMENT ON THE DATE OF GRANT WILL CONTINUE TO EXIST OR THAT
THE AWARD WILL QUALIFY AT THE TIME OF EXERCISE OR DISPOSITION THEREOF WITH ANY PARTICULAR TAX TREATMENT. THE COMPANY AND THE AFFILIATE
SHALL NOT HAVE ANY LIABILITY OR OBLIGATION OF ANY NATURE IN THE EVENT THAT AN AWARD DOES NOT QUALIFY FOR ANY PARTICULAR TAX TREATMENT,
REGARDLESS WHETHER THE COMPANY COULD HAVE TAKEN ANY ACTION TO CAUSE SUCH QUALIFICATION TO BE MET AND SUCH QUALIFICATION REMAINS
AT ALL TIMES AND UNDER ALL CIRCUMSTANCES AT THE RISK OF THE PARTICIPANT. THE COMPANY DOES NOT UNDERTAKE OR ASSUME ANY LIABILITY
TO CONTEST A DETERMINATION OR INTERPRETATION (WHETHER WRITTEN OR UNWRITTEN) OF ANY TAX AUTHORITY, INCLUDING IN RESPECT OF THE
QUALIFICATION UNDER ANY PARTICULAR TAX REGIME OR RULES APPLYING TO PARTICULAR TAX TREATMENT. IF THE AWARDS DO NOT QUALIFY UNDER
ANY PARTICULAR TAX TREATMENT IT COULD RESULT IN ADVERSE TAX CONSEQUENCES TO THE PARTICIPANT.
5.5. The Company or the Affiliate
may take such action as it may deem necessary or appropriate, in its discretion, for the purpose of or in connection with withholding
of any taxes and compulsory payments which the Trustee, the Company or the Affiliate is required by any Applicable Law to withhold
in connection with any Awards (collectively, “Withholding Obligations”). Such actions may include (i) requiring
Participants to remit to the Company in cash an amount sufficient to satisfy such Withholding Obligations and any other taxes
and compulsory payments, payable by the Company in connection with the Award or the exercise or (if applicable) vesting thereof;
(ii) subject to Applicable Law, allowing the Participants to provide shares of Common Stock, in an amount that at such time, reflects
a value that the Committee determines to be sufficient to satisfy such Withholding Obligations; (iii) withholding shares of Common
Stock otherwise issuable upon the exercise of an Award at a value which is determined by the Committee to be sufficient to satisfy
such Withholding Obligations; or (iv) any combination of the foregoing. The Company shall not be obligated to allow the exercise
of any Award by or on behalf of a Participant until all tax consequences arising from the exercise of such Award are resolved
in a manner acceptable to the Company.
5.6. Each Participant shall notify
the Company in writing promptly and in any event within ten (10) days after the date on which such Participant first obtains knowledge
of any tax bureau inquiry, audit, assertion, determination, investigation, or question relating in any manner to the Awards granted
or received hereunder or shares of Common Stock issued thereunder and shall continuously inform the Company of any developments,
proceedings, discussions and negotiations relating to such matter, and shall allow the Company and its representatives to participate
in any proceedings and discussions concerning such matters. Upon request, a Participant shall provide to the Company any information
or document relating to any matter described in the preceding sentence, which the Company, in its discretion, requires.
5.7. With respect to 102 Non-Trustee
Awards, if the Participant ceases to be employed by the Company or any Affiliate, the Participant shall extend to the Company
and/or the Affiliate with whom the Participant is employed a security or guarantee for the payment of taxes due at the time of
sale of shares of Common Stock, all in accordance with the provisions of Section 102 and the Rules.
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6.
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RIGHTS AND OBLIGATIONS AS A STOCKHOLDER
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6.1. A Participant shall have no
rights as a stockholder of the Company with respect to any shares of Common Stock covered by an Award until the Participant exercises
the Award, pays the exercise price therefor and becomes the record holder of the subject shares of Common Stock. In the case of
102 Awards or 3(9) Awards (if such Awards are being held by a Trustee), the Trustee shall have no rights as a stockholder of the
Company with respect to the shares of Common Stock covered by such Award until the Trustee becomes the record holder for such
Common Stock for the Participant’s benefit, and the Participant shall not be deemed to be a stockholder and shall have no
rights as a stockholder of the Company with respect to the shares of Common Stock covered by the Award until the date of the release
of such shares of Common Stock from the Trustee to the Participant and the transfer of record ownership of such shares of Common
Stock to the Participant (provided however that the Participant shall be entitled to receive from the Trustee any cash dividend
or distribution made on account of the shares of Common Stock held by the Trustee for such Participant’s benefit, subject
to any tax withholding and compulsory payment). No adjustment shall be made for dividends (ordinary or extraordinary, whether
in cash, securities or other property) or distribution of other rights for which the record date is prior to the date on which
the Participant or Trustee (as applicable) becomes the record holder of the shares of Common Stock covered by an Award, except
as provided in the Plan.
6.2. With respect to shares of
Common Stock issued upon the exercise or (if applicable) vesting of Awards hereunder, any and all voting rights attached to such
Common Stock shall be subject to the provisions of the Plan, and the Participant shall be entitled to receive dividends distributed
with respect to such shares of Common Stock, subject to the provisions of the Company’s Certificate of Incorporation and
By-laws, as amended from time to time, and subject to any Applicable Law (after deduction of all applicable tax payments).
7.1. This Appendix shall be governed
by, construed and enforced in accordance with the laws of the State of Delaware, without reference to conflicts of law principles,
except that applicable Israeli laws, rules and regulations (as amended) shall apply to any mandatory tax matters arising hereunder.
****
Annex E
STATE
OF DELAWARE
CERTIFICATE
OF AMENDMENT
OF
CERTIFICATE
OF INCORPORATION
OF
CHARDAN
HEALTHCARE ACQUISITION CORP.
Chardan
Healthcare Acquisition Corp., a Delaware corporation (the “Corporation”), does hereby certify that:
First:
That the Board of Directors and stockholders of the Corporation by unanimous written consent dated as of September ___, 2019,
adopted resolutions setting forth an amendment to the Certificate of Incorporation of the Corporation. The resolutions setting
forth the amendment are as follows:
RESOLVED,
that the Corporation’s Certificate of Incorporation be amended as follows:
1)
ARTICLE FIFTH is amended and restated in its entirety to read as follows:
“The
total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 61,000,000, of which
60,000,000 shares shall be common stock, par value $.0001 per share (“Common Stock”) and 1,000,000 shares shall be
preferred stock, par value $.0001 per share (“Preferred Stock”).
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a.
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Preferred
Stock. The Board of Directors is expressly granted authority to issue shares of the
Preferred Stock, in one or more series, and to fix for each such series such voting powers,
full or limited, and such designations, preferences and relative, participating, optional
or other special rights and such qualifications, limitations or restrictions thereof
as shall be stated and expressed in the resolution or resolutions adopted by the Board
of Directors providing for the issue of such series (a “Preferred Stock Designation”)
and as may be permitted by the GCL. The number of authorized shares of Preferred Stock
may be increased or decreased (but not below the number of shares thereof then outstanding)
by the affirmative vote of the holders of a majority of the voting power of all of the
then outstanding shares of the capital stock of the Corporation entitled to vote generally
in the election of directors, voting together as a single class, without a separate vote
of the holders of the Preferred Stock, or any series thereof, unless a vote of any such
holders is required pursuant to any Preferred Stock Designation.
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b.
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Common
Stock. Except as otherwise required by law or as otherwise provided in any Preferred
Stock Designation, the holders of the Common Stock shall exclusively possess all voting
power and each share of Common Stock shall have one vote.”
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2)
ARTICLE SEVENTH is amended and restated in its entirety to read as follows:
“The
following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation, and
for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders:
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a.
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Election
of directors need not be by ballot unless the by-laws of the Corporation so provide.
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b.
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Board
of Directors shall have the power, without the assent or vote of the stockholders, to
make, alter, amend, change, add to or repeal the by-laws of the Corporation as provided
in the by-laws of the Corporation.
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c.
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The
directors in their discretion may submit any contract or act for approval or ratification
at any annual meeting of the stockholders or at any meeting of the stockholders called
for the purpose of considering any such act or contract, and any contract or act that
shall be approved or be ratified by the vote of the holders of a majority of the stock
of the Corporation which is represented in person or by proxy at such meeting and entitled
to vote thereat (provided that a lawful quorum of stockholders be there represented in
person or by proxy) shall be as valid and binding upon the Corporation and upon all the
stockholders as though it had been approved or ratified by every stockholder of the Corporation,
whether or not the contract or act would otherwise be open to legal attack because of
directors’ interests, or for any other reason.
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d.
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In
addition to the powers and authorities hereinbefore or by statute expressly conferred
upon them, the directors are hereby empowered to exercise all such powers and do all
such acts and things as may be exercised or done by the Corporation; subject, nevertheless,
to the provisions of the statutes of Delaware, of this Amended and Restated Certificate
of Incorporation, and to any bylaws from time to time made by the stockholders; provided,
however, that no bylaw so made shall invalidate any prior act of the directors which
would have been valid if such bylaws had not been made.
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e.
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The
Board of Directors shall be divided into three classes: Class I, Class II and Class III.
The number of directors in each class shall be fixed exclusively by the Board of Directors
and shall be as nearly equal as possible. Following the filing of the amendment to the
certificate of incorporation including this provision, the entire Board of Directors
will be elected at the first Annual Meeting of Stockholders. At such first Annual Meeting
of Stockholders, the directors in Class I shall be elected for a term expiring at the
second Annual Meeting of Stockholders, the directors in Class II shall be elected for
a term expiring at the third Annual Meeting of Stockholders and the directors in Class
III shall be elected for a term expiring at the fourth Annual Meeting of Stockholders.
Commencing at the second Annual Meeting of Stockholders following the filing of the amendment
to the certificate of incorporation including this provision, and at each annual meeting
thereafter, directors elected to succeed those directors whose terms expire shall be
elected for a term of office to expire at the third succeeding annual meeting of stockholders
after their election. Except as the GCL may otherwise require, in the interim between
annual meetings of stockholders or special meetings of stockholders called for the election
of directors and/or the removal of one or more directors and the filling of any vacancy
in that connection, newly created directorships and any vacancies in the Board of Directors,
including unfilled vacancies resulting from the removal of directors for cause, may be
filled only by the vote of a majority of the remaining directors then in office, although
less than a quorum (as defined in the Corporation’s bylaws), or by the sole remaining
director. All directors shall hold office until the expiration of their respective terms
of office and until their successors shall have been elected and qualified. A director
elected to fill a vacancy resulting from the death, resignation or removal of a director
shall serve for the remainder of the full term of the director whose death, resignation
or removal shall have created such vacancy and until his successor shall have been elected
and qualified.
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Second:
That, pursuant to §228 of the General Corporation Law of the State of Delaware, a written consent approving the
amendment set forth above was signed by the holders of outstanding voting stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting on such date at which all shares entitled to vote thereon
were present and voted.
Third:
That said amendment was duly adopted in accordance with the provisions of §242 of the General Corporation Law
of the State of Delaware.
IN
WITNESS WHEREOF, said corporation has caused this certificate to be signed this ____ day of September 2019.
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By:
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Name:
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Jonas
Grossman
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Title:
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Chief
Executive Officer
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PRELIMINARY COPY – NOT FOR USE
PROXY
FOR THE SPECIAL MEETING OF STOCKHOLDERS
OF
CHARDAN HEALTHCARE ACQUISITION CORP.
TO BE HELD ON October 23, 2019