Business Context and Reporting Period
This Form 8-K, dated July 4, 2022, reports that Health Sciences Acquisitions Corporation 2 ("HSAC2") has entered into a definitive Merger Agreement with Orchestra BioMed, Inc. ("Orchestra"). The transaction involves a two-step business combination: HSAC2 will domesticate from the Cayman Islands to Delaware, followed by a merger where Orchestra becomes a wholly-owned subsidiary. Upon closing, HSAC2 will be renamed "Orchestra BioMed Holdings, Inc." ("New Orchestra").
Key Financial Metrics and Transaction Terms
- Merger Consideration: Orchestra shareholders will receive 0.465 shares of New Orchestra Common Stock for each share of Orchestra common stock held.
- Earnout Potential: Up to 8,000,000 additional shares are available contingent on stock price milestones ($15.00 and $20.00 VWAP) within five years of closing.
- Forward Purchase Agreements: RTW Investments funds and Medtronic affiliate (Covidien Group) agreed to purchase a total of $20 million in HSAC2 ordinary shares.
- Backstop Agreement: RTW Funds agreed to purchase shares at $10.00 per share to ensure New Orchestra has at least $60 million in cash at closing.
- Recent Financing: A press release referenced in the filing notes Orchestra recently completed a Series D financing with gross proceeds of approximately $110 million, including $20 million from RTW and $40 million from Medtronic.
- Equity Incentive Plan: New Orchestra will adopt a plan with shares available for issuance equal to 17.5% of the post-closing outstanding common stock.
Material Changes and Agreements
The filing details the execution of multiple material agreements effective July 4, 2022:
- Shareholder Support: HSAC2's Sponsor and certain shareholders agreed to vote in favor of the merger, waive redemption rights, and forfeit 25% of their shares (1,000,000 shares) if specific stock price milestones are not met within five years. The Sponsor also agreed to forfeit 50% of its warrants (750,000 warrants).
- Lock-Up Periods: Sponsor and initial shareholders are subject to a 12-month lock-up. Other holders are subject to a 6-month lock-up, extendable to 12 months for those electing to participate in the earnout.
- Board Composition: Immediately following the closing, the board of directors will consist of the existing Orchestra board of directors.
Guidance, Risks, and Conditions to Closing
Conditions to Closing: The transaction is subject to several conditions, including shareholder approval from both HSAC2 and Orchestra, regulatory approvals, Nasdaq listing approval, and the effectiveness of the Form S-4 registration statement. A critical condition is that New Orchestra must have at least $60 million in cash at closing (inclusive of the Sponsor Commitment).
Timeline: The agreement includes an "Outside Closing Date" of February 6, 2023. If the merger is not consummated by this date, either party may terminate the agreement.
Risks and Contingencies: The filing highlights standard risks associated with SPAC mergers, including the failure to obtain regulatory approvals, inability to meet minimum cash requirements due to redemptions, and the uncertainty of achieving earnout milestones. Forward-looking statements regarding the merger's success and future performance are subject to significant risks and uncertainties.
Investor Verification Checklist
- Verify the final exchange ratio of 0.465 shares and the specific terms of the earnout election agreement.
- Confirm the final cash position at closing to ensure the $60 million minimum cash condition is met after accounting for any shareholder redemptions.
- Review the upcoming Form S-4 proxy statement/prospectus for detailed financial data on Orchestra and HSAC2.
- Monitor the status of the Series D financing and the specific terms of the Medtronic and RTW investments.
- Check for any updates regarding the forfeiture of Sponsor shares and warrants based on future stock performance.