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CONSTELLATION ALPHA CAPITAL CORP. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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08/13/2019 | 04:09pm EDT

References in this report (the "Quarterly Report") to "Constellation," "we," "us" or the "Company" refer to Constellation Alpha Capital Corp. References to our "management" or our "management team" refer to our officers and directors, and references to the "Sponsor" refer to Centripetal, LLC. The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as "expect," "believe," "anticipate," "intend," "estimate," "seek" and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management's current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the "SEC"). Our securities filings can be accessed on the EDGAR section of the SEC's website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Overview

We are a blank check company incorporated on July 31, 2015 in the British Virgin Islands and formed for the purpose of entering into a business combination with one or more target businesses.

On June 23, 2017, we consummated our initial public offering of 14,375,000 units (including 1,875,000 units sold pursuant to the underwriters exercising their over-allotment option), with each unit consisting of one ordinary share, one warrant, each warrant entitling the holder to purchase one-half of one ordinary share at a price of $11.50 per whole share and one right to receive one-tenth of one ordinary share upon the consummation of an initial business combination. No fractional shares will be issued upon exercise of the warrants. Each warrant will become exercisable on the completion of our business combination. The warrants will expire five years after the completion of our initial business combination or earlier upon redemption or liquidation.

The units in our initial public offering were sold at an offering price of $10.00 per unit, generating total gross proceeds of $143,750,000. Cowen Investments acted as the sole book running manager and I-Bankers Securities, Inc. acted as co-manager of the offering. The securities sold in the offering were registered under the Securities Act on a registration statement on Form S-1 (No. 333-218093), or our registration statement. The SEC declared our registration statement effective on June 19, 2017.

We paid a total of $2,875,000 in underwriting discounts and commissions and $514,467 for other costs and expenses related to our initial public offering. In addition, the underwriters agreed to defer $5,031,250 in underwriting discounts and commissions, and up to this amount will be payable upon consummation of the business combination. After deducting the underwriting discounts and commissions (excluding the deferred portion of $5,031,250 in underwriting discounts and commissions, which will be released from the trust account upon consummation of the business combination, if consummated) and the estimated offering expenses, the total net proceeds from our initial public offering and the private placement was $145,973,033, of which $145,187,500 (or $10.10 per unit sold in our initial public offering) was placed in the trust account. Of the 3.5% deferred underwriting fee, or $5,031,250, 0.5% (or $718,750) is payable in our sole discretion. In May 2019, we elected not to pay the 0.5% discretionary deferred underwriting fee to the underwriters.

In connection with the execution of the Merger Agreement, CNAC, DermTech and Cowen and Company, LLC ("Cowen") entered into a letter agreement, dated May 29, 2019, (the "Deferred Underwriting Fee Assignment Agreement"), pursuant to which we agreed to assign to DermTech, and DermTech agreed to assume, our obligation under the Underwriting Agreement to pay the underwriters the deferred underwriting fees, subject to certain adjustments and pursuant to the terms of the Deferred Underwriting Fee Assignment Agreement.

Pursuant to the terms of the Deferred Underwriting Fee Assignment Agreement, if the Merger is consummated and we raise at least $15.0 million in proceeds from equity financings consummated prior to the one-year anniversary of the Merger Closing, excluding the proceeds received from any financing consummated prior to or simultaneous with the Merger Closing, then DermTech will pay to the underwriters $2,187,500 within two business days of CNAC receiving the proceeds from such equity financings. If we fail to raise such funds by the one-year anniversary of the consummation of the Merger, then DermTech will pay to the underwriters $1,093,750 within one week of the one-year anniversary of the Merger Closing, and the underwriters will have the option to receive an additional $1,093,750 in CNAC common stock at that time (the "Equity Payment") based on the then fair market value of CNAC common stock, or to receive $1,093,750 in cash at a later date. DermTech's payment to the underwriters of $2,187,500, or its payment of $1,093,750 plus the Equity Payment, in either case, shall satisfy DermTech's obligation to pay the deferred underwriting fees in full, and no further payment of any kind shall be required of DermTech or CNAC in connection with the deferred underwriting fees.

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On March 21, 2019, at the Special Meeting, our shareholders approved our amended and restated memorandum and articles of association to extend the date by which we have to consummate a business combination (the "Extension") to September 23, 2019 (the "Combination Period"). In connection with the Extension, an aggregate of 13,187,468 ordinary shares was redeemed for an aggregate payment of approximately $136.9 million out of the trust account.

If we are unable to complete a Business Combination on or before the Combination Period, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than five business days thereafter, redeem 100% of the outstanding public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest earned (net of taxes payable and less interest to pay dissolution expenses up to $50,000), divided by the number of then outstanding public shares, which redemption will completely extinguish public shareholders' rights as shareholders (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 the remaining shareholders and our board of directors, proceed to commence a voluntary liquidation and thereby a formal dissolution of the Company, subject in each case to our obligations to provide for claims of creditors and the requirements of applicable law.

We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a business combination or to raise capital will be successful.

On March 15, 2019, we issued a press release announcing that we executed a non-binding Letter of Intent to merge with DermTech, a Delaware corporation and a leading moleculargenomics company, with an initial focus on skin cancer, that develops and markets novel non-invasive diagnostic tests. On May 22, 2019 and May 23, 2019, we entered into separate subscription agreements (each, an "Initial Subscription Agreement" and collectively, the "Initial Subscription Agreements"), with new health care focused institutional investors as well as certain existing investors in DermTech (the "Initial Subscribers"), pursuant to which the Initial Subscribers agreed to purchase an aggregate of 6,153,847 shares (the "PIPE Shares") of our common stock for a purchase price of $3.25 per share of common stock, in a private placement that contemplated that we would raise an aggregate of approximately $20 million, less certain offering related expenses payable by us (the "Private Placement"). The PIPE Shares are identical to the shares of common stock that will be held by our public stockholders at the time of the closing of the Merger, as defined below. The closing of the sale of PIPE Shares will be contingent upon, among other things, the substantially concurrent consummation of the Merger.

On May 29, 2019, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with DermTech and DT Merger Sub, Inc., our wholly owned subsidiary company of the Company incorporated in Delaware ("Merger Sub"), pursuant to which we will re-domicile out of the British Virgin Islands and continue as a company incorporated in the State of Delaware and Merger Sub will merge with and into DermTech (the "Merger"), with DermTech surviving the Merger as our wholly owned subsidiary. Upon the closing of the Merger, all of DermTech's outstanding common stock and preferred stock will be cancelled and converted automatically into the right to receive an aggregate of 16,000,000 shares of the Company less the total number of shares of our common stock that can be acquired or received pursuant to certain options, restricted stock units and warrants of DermTech, as set forth in the Merger Agreement. Consummation of the Business Combination is subject to customary conditions.

On August 1, 2019, certain of the Initial Subscribers entered into amended and restated subscription agreements (the "Amended and Restated Subscription Agreements") pursuant to which we agreed to sell to each such subscriber, and each such subscriber agreed to purchase, (i) shares of our common stock at a purchase price of $3.25 per share and (ii) shares of our Series A Convertible Preferred Stock (the "Preferred Shares") at a purchase price of $3,250 per Preferred Share. The subscribers to the Amended and Restated Subscription Agreements agreed to purchase an aggregate of 1,230,769 shares of our common stock and 1,231 Preferred Shares for an aggregate total purchase price of approximately $8 million. Pursuant to the terms of the Amended and Restated Subscription Agreements, each Preferred Share is convertible into 1,000 shares of our common stock. In connection with the New Subscription Agreement and the proposed issuance of Preferred Shares to certain subscribers, we received a waiver from DermTech to certain provisions of the Merger Agreement allowing us to (i) issue the Preferred Shares pursuant to the Amended and Restated Subscription Agreements and (ii) increase the amount of the proposed Private Placement to $24 million. On August 1, 2019, certain of the Initial Subscribers entered into an Omnibus Common Share Subscription Agreement Amendment, which modified certain of the Initial Subscription Agreements to, among other things, adjust the limitation on the aggregate proceeds that Constellation is permitted to receive from the sale of its stock from the date of the Merger Agreement from $20 million to $24 million.

On August 1, 2019, we entered into a subscription agreement (the "New Subscription Agreement") with a new investor (the "New Subscriber"), pursuant to which the New Subscriber agreed to purchase, and we agreed to sell to the New Subscriber, an aggregate of 1,230,769 shares of our common stock, at a purchase price of $3.25 per share for a total purchase price of approximately $4 million. Under the New Subscription Agreement, the shares of our common stock to be issued and the price per share are subject to adjustment for any reverse split or other adjustment that may be effected for the purpose of meeting the initial listing requirements of the Nasdaq Capital Market in connection with the consummation of the Merger. The shares of our common stock to be issued pursuant to the New Subscription Agreement will be identical to the shares of our common stock that will be held by our public stockholders upon the closing of the Merger.

In addition, on August 1, 2019, we entered into the First Amendment to the Agreement and Plan of Merger with Merger Sub, and DermTech, which amended the Merger Agreement to add Mr. Enrico Picozza to the list of initial directors of the combined company following the consummation of the Merger.

On August 8, 2019, the SEC declared effective our registration statement on Form S-4 (File No. 333-232181), as amended, which includes a proxy statement with respect to our special meeting of shareholders to approve the Merger Agreement among other matters as well as prospectus with respect to the shares of common stock to be issued in connection with the Merger. On August 9, 2019, we commenced the mailing of the proxy statement to our shareholders as of the July 25, 2019 record date.

Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard

On February 22, 2019, the Notice from the Listing Qualifications Department of The Nasdaq Stock Market indicating that we are not in compliance with the Minimum Public Holders Rule, which requires us to have at least 300 public holders for continued listing on the NASDAQ Capital Market. The Notice is only a notification of deficiency, not of imminent delisting, and has no current effect on the listing or trading of our securities on the NASDAQ Capital Market.

On April 8, 2019, we submitted a plan to regain compliance with the Minimum Public Holders Rule to Nasdaq providing that it expects to regain compliance with the Minimum Public Holders Rule upon the consummation of the Merger. Nasdaq subsequently provided us with an extension until August 21, 2019, to demonstrate compliance with Nasdaq's initial listing requirements.

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Results of Operations

We have neither engaged in any operations nor generated any revenues to date. Our only activities from inception through June 30, 2019 were organizational activities, those necessary to consummate our initial public offering and identifying a target company for a business combination. We do not expect to generate any operating revenues until after the completion of our business combination. We expect to generate non-operating income in the form of interest income on cash and marketable securities we hold as a result of the initial public offering. 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 in pursuit of our acquisition plans.

For the three months ended June 30, 2019, we had net loss of approximately $139,000, consisting of interest income of approximately $70,900, unrealized gain on marketable securities held in our trust account of approximately $3,000, and reduction of deferred underwriting fees of approximately $719,000, offset by operating costs of approximately $932,000.

For the three months ended June 30, 2018, we had net income of approximately $444,000, consisting of interest income on marketable securities held in our trust account of approximately $650,000, offset by operating costs of approximately $158,000 and an unrealized loss on marketable securities held in our trust account of approximately $48,000.

Going Concern Consideration

The accompanying condensed consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. As of June 30, 2019, we cash and marketable securities held in the trust account of approximately $12.4 million (including approximately $438,000 of interest income, net of unrealized losses), substantially all of which is invested in U.S. treasury bills with a maturity of 180 days or less, and a working capital deficit of approximately $2.4 million. Further, we have incurred and expect to continue to incur significant costs in pursuit of our acquisition plans. Based on the foregoing, we will have insufficient funds available to operate our business through the earlier of consummation of a business combination or September 23, 2019, the date we are required to liquidate the trust account and wind up our affairs if we have not completed a business combination. Following the initial business combination, if cash on hand is insufficient, we will need to obtain additional financing in order to meet our obligations. We cannot be certain that additional funding will be available on acceptable terms, or at all. Our plans to raise capital or to consummate the initial business combination may not be successful. These matters, among others, raise substantial doubt about our ability to continue as a going concern.

As of June 30, 2019, we had cash of approximately $15,000 held outside the trust account, which is available for use by us for general corporate purposes. In addition, as of June 30, 2019, we had accounts payable and accrued expenses of approximately $2.4 million.

On April 17, 2019 and May 21, 2019, we entered into two promissory notes evidencing loans of $55,000 and $14,559 made to us by two related parties, respectively, for the sole purpose of paying our expenses. The principal balance of the notes shall be payable on the date that we consummate our initial business combination from the funds available to us in connection with the consummation of our initial business combination.

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Liquidity and Capital Resources

On June 23, 2017, we consummated our initial public offering of 14,375,000 Units, at a price of $10.00 per Unit, which includes the full exercise by the underwriters of their over-allotment option in the amount of 1,875,000 Units at $10.00 per Unit, generating gross proceeds of $143.75 million. Simultaneously with the closing of our initial public offering, we consummated the sale of 561,250 Private Units at a price of $10.00 per Unit, of which of which 425,000 Private Units were purchased by the Sponsor and 136,250 Private Units were purchased by Cowen Investments, generating gross proceeds of approximately $5.61 million.

Following the initial public offering and the exercise of the over-allotment option, a total of approximately $145.2 million was placed in the trust account. We incurred approximately $8.4 million in initial public offering related costs, including $2.875 million of underwriting fees, approximately $5.03 million of deferred underwriting fees and approximately $514,000 of initial public offering costs. In connection with the Extension in March 2019, an aggregate of 13,187,468 ordinary shares were redeemed for an aggregate payment of approximately $136.9 million out of the Trust Account.

For the three months ended June 30, 2019, cash used in operating activities amounted to approximately $26,000. Net income of approximately $2.0 million was impacted by interest earned on marketable securities held in the trust account of approximately $71,000, an unrealized gain on marketable securities held in the trust account of approximately $3,000, and reduction of deferred underwriting fees liability of approximately $719,000. Changes in our operating assets and liabilities provided cash of approximately $906,000. In addition, cash provided by financing activities was $10,500 comprised solely of advances from a related party.

For the three months ended June 30, 2018, cash used in operating activities amounted to approximately $64,000. Net income of approximately $444,000 was impacted by interest earned on marketable securities held in the trust account of approximately $650,000 and an unrealized loss on marketable securities held in the trust account of approximately $48,000. Changes in our operating assets and liabilities provided cash of approximately $94,000.

We intend to use substantially all of the net proceeds of our initial public offering and the sale of the private units, including the funds held in the trust account (excluding deferred underwriting commissions and taxes payable on interest earned on the trust account), to acquire a target business or businesses and to pay our expenses relating thereto. To the extent that our shares are used in whole or in part as consideration to effect our initial business combination, the remaining proceeds held in the trust account as well as any other net proceeds not expended will be used as working capital. Such working capital funds could be used in a variety of ways including continuing or expanding the target business' operations, for strategic acquisitions and for marketing, research and development of existing or new products. Such funds could also be used to repay any operating expenses or finders' fees which we had incurred prior to the completion of our initial business combination if the funds available to us outside of the trust account were insufficient to cover such expenses.

We intend to use the funds held outside the trust account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a business combination.

In order to finance transaction costs in connection with a business combination, our sponsor or an affiliate of our sponsor, or our officers and directors may, but are not obligated to, loan us funds 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 $1,500,000 of such loans may be converted into private units of the post business combination entity at a price of $10.00 per private unit at the option of the lender. The terms of such loans, if any, have not been determined and no written agreements exist with respect to such loans. As of March 31, 2018, we had an outstanding balance of approximately $11,100 of advances from related parties for expenses incurred on our behalf. In December 2018 and June 2019, our Chief Executive Officer (the "CEO") advanced $25,000 and $10,500 to us, respectively. In addition, on April 17, 2019 and May 21, 2019, we entered into two promissory notes evidencing loans of $55,000 and $14,559 made to us by two lenders, respectively, for the sole purpose of paying a portion of our expenses. On August 7, 2019, we received an additional advance of $24,500 from our CEO, which were evidenced together with the advances received from the CEO in December 2018 and June 2019 by promissory note for an aggregate principal amount $60,000. The principal balance of the notes shall be payable on the date that we consummate our initial business combination from the funds available to us in connection with the consummation of our initial business combination.

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We will need to obtain additional financing either to consummate our business combination or because we become obligated to redeem a significant number of our public shares upon consummation of our business combination, in which case we will 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, in which case we will issue additional securities or incur debt in connection with such business combination. We cannot provide any assurance that financing will be available to us on commercially acceptable terms, if at all. 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 financing arrangements

We have no obligations, assets or liabilities which would be considered off-balance sheetarrangements as defined in Item 303(a)(4)(ii) of Regulation S-K. 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, other than an agreement to pay our sponsor a monthly fee of $10,000 for office space, utilities and administrative support provided to the Company. We began incurring these fees on June 20, 2017 and will continue to incur these fees monthly until the earlier of the completion of the business combination and the Company's liquidation.

Critical Accounting Policies

The preparation of condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America ("GAAP") 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 condensed consolidated 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 policy:

Ordinary shares subject to possible redemption

We account for our ordinary shares subject to possible redemption in accordance with the guidance in Accounting Standards Codification ("ASC") Topic 480 "Distinguishing Liabilities from Equity." Ordinary shares subject to mandatory redemption (if any) are classified as a liability instrument and are measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature 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) are classified as temporary equity. At all other times, ordinary shares are classified as shareholders' equity. Our ordinary shares feature certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, at June 30, 2019 and March 31, 2019, ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders' equity section of our condensed consolidated balance sheet.

Net income (loss) per ordinary share

Net income (loss) per ordinary share is computed by dividing net income (loss) by the weighted average number of ordinary shares outstanding for the period. We apply the two-class method in calculating earnings per share. Ordinary shares subject to possible redemption at June 30, 2019 and 2018, which are not currently redeemable and are not redeemable at fair value, have been excluded from the calculation of basic loss per share since such shares, if redeemed, only participate in their pro rata share of the earnings from the assets held in the trust account.




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Recent accounting pronouncements

Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company's condensed consolidated financial statements.

The Merger

On May 29, 2019, the Company, Merger Sub, and DermTech entered into the Merger Agreement, which was amended on August 1, 2019, pursuant to which Merger Sub will merge with and into DermTech, with DermTech surviving the Merger as a wholly owned subsidiary of the Company (collectively with the transactions related thereto, the "Transaction").

Merger Agreement

Domestication

The Merger Agreement provides that at least two business days prior to the closing of the Merger (the "Merger Closing"), we will re-domicile out of the British Virgin Islands and continue as a company incorporated in the State of Delaware pursuant to Section 184 of the BVI Business Companies Act and Section 388 of the Delaware General Corporation Law (the "Domestication"). In connection with the Domestication, all ordinary shares, no par value, of Constellation will be deemed to be converted into shares of common stock, par value $0.0001 per share, of Constellation (the "Constellation common stock").

The Transaction and Consideration

At the Merger Closing, all of DermTech's outstanding common stock and preferred stock will be cancelled and converted automatically into the right to receive an aggregate of 16,000,000 shares of Constellation common stock less the total number of shares of Constellation common stock that can be acquired or received pursuant to certain options, restricted stock units and warrants of DermTech, as set forth in the Merger Agreement. All of DermTech's options, restricted stock units and warrants, whether vested or unvested, that will remain outstanding following the Merger Closing, will be assumed by Constellation and will become awards to acquire shares of Constellation common stock, as set forth in the Merger Agreement.

Conditions to Completion of the Transaction

Consummation of the Transaction is subject to customary and other conditions, including (i) the shareholders of Constellation having approved, among other things, the transactions contemplated by the Merger Agreement, (ii) the stockholders of DermTech having approved the transactions contemplated by the Merger Agreement, (iii) the completion of the Domestication, (iv) the absence of any governmental order that would prohibit the Transaction, and (v) a registration statement (as specified in the Merger Agreement) shall have been declared effective by the SEC.

Termination of the Merger Agreement

The Merger Agreement may be terminated prior to consummation of the Transaction by mutual consent of DermTech and Constellation. In addition, the Merger Agreement may be terminated by either DermTech or Constellation if (i) the Merger shall not have been consummated prior to September 24, 2019; (ii) any governmental authority in the United States shall have issued a final, non-appealable order that has the effect of making consummation of the Merger illegal or otherwise preventing or prohibiting consummation of the Transaction; or (iii) the Merger Agreement shall fail to receive the requisite vote for approval when presented to Constellation's shareholders. The Merger Agreement may also be terminated by either Constellation or DermTech in the event that certain other conditions provided for in the Merger Agreement are triggered.

Registration Rights Agreement

In connection with, and as a condition to the Merger Closing, the Merger Agreement provides that Constellation and certain persons and entities which will hold Constellation common stock upon the consummation of the Transaction (collectively, the "Investors") will enter into a Registration Rights Agreement (the "Registration Rights Agreement"). Pursuant to the terms of the Registration Rights Agreement, Constellation will be obligated to file a shelf registration statement on Form S-3 to register the resale by the Investors of Constellation common stock issuable in connection with the Transaction. The Registration Rights Agreement will also provide the Investors with demand, "piggy-back" and Form S-3 registration rights, subject to certain minimum requirements and customary conditions.




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Lock-Up Agreement

In connection with, and as a condition to the Merger Closing, the Merger Agreement provides that the Investors and certain persons and entities which will hold Constellation common stock upon the consummation of the Transaction will each enter into a Lock-up Agreement providing each such holder agrees that, during the period commencing on the Merger Closing and continuing to and including the date 180 days after the date of the Merger Closing, such holder will not sell, offer to sell, pledge, or transfer any Constellation securities held by such holder, subject to certain limited exceptions.

Subscription Agreements

On May 22, 2019 and May 23, 2019, Constellation entered into separate Initial Subscription Agreements with certain of the Initial Subscribers, pursuant to which the Initial Subscribers agreed to purchase, and Constellation agreed to sell to the Initial Subscribers, an aggregate of 6,153,847 PIPE Shares for a purchase price of $3.25 per share, in a private placement which contemplated that Constellation would raise an aggregate of approximately $20,000,000, less certain offering related expenses payable by Constellation. The PIPE Shares are identical to the shares of Constellation common stock that will be held by Constellation's public stockholders at the time of the Merger Closing.

The closing of the sale of PIPE Shares (the "PIPE Closing") will be contingent upon the substantially concurrent consummation of the Transaction. The PIPE Closing will occur on the date of, and immediately prior to, the consummation of the Transaction and will be subject to customary conditions. The purpose of the sale of the PIPE Shares is to raise additional capital for working capital following the Merger Closing.

Constellation has agreed that, within 45 days after the consummation of the Transaction, it will file with the SEC a registration statement registering the resale of the PIPE Shares, and will use its commercially reasonable efforts to have such registration statement declared effective as soon as practicable following the filing thereof.

No fees or other compensation was paid or will be payable to any of the Subscribers or any third parties in consideration of the Subscribers entering into the Subscription Agreements.

On August 1, 2019, certain of the Initial Subscribers entered into the Amended and Restated Subscription Agreements pursuant to which we agreed to sell to each such subscriber, and each such subscriber agreed to purchase, (i) shares of our common stock at a purchase price of $3.25 per share and (ii) Preferred Shares at a purchase price of $3,250 per Preferred Share. The subscribers to the Amended and Restated Subscription Agreements agreed to purchase an aggregate of 1,230,769 shares of our common stock and 1,231 Preferred Shares for an aggregate total purchase price of approximately $8 million. Pursuant to the terms of the Amended and Restated Subscription Agreements, each Preferred Share is convertible into 1,000 shares of our common stock. In connection with the New Subscription Agreement and the proposed issuance of Preferred Shares to certain subscribers, we received a waiver from DermTech to certain provisions of the Merger Agreement allowing us to (i) issue the Preferred Shares pursuant to the Amended and Restated Subscription Agreements and (ii) increase the amount of the proposed Private Placement to $24 million. On August 1, 2019, certain of the Initial Subscribers entered into an Omnibus Common Share Subscription Agreement Amendment, which modified certain of the Initial Subscription Agreements to, among other things, adjust the limitation on the aggregate proceeds that Constellation is permitted to receive from the sale of its stock from the date of the Merger Agreement from $20 million to $24 million.

On August 1, 2019, we entered into the New Subscription Agreement with the New Subscriber, pursuant to which the New Subscriber agreed to purchase, and we agreed to sell to the New Subscriber, an aggregate of 1,230,769 shares of our common stock, at a purchase price of $3.25 per share for a total purchase price of approximately $4 million. Under the New Subscription Agreement, the shares of our common stock to be issued and the price per share are subject to adjustment for any reverse split or other adjustment that may be effected for the purpose of meeting the initial listing requirements of the Nasdaq Capital Market in connection with the consummation of the Merger. The shares of our common stock to be issued pursuant to the New Subscription Agreement will be identical to the shares of our common stock that will be held by our public stockholders upon the closing of the Merger.

Forfeiture Agreement

On May 29, 2019, the Sponsor entered into a Forfeiture Letter, pursuant to which the Sponsor will forfeit to Constellation an aggregate of 2,694,779 shares of Constellation common stock, effective as of immediately prior to the consummation of the Transaction.

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04:38pSEACHANGE INTERNATIONAL : to Issue Fiscal 2020 Second Quarter Results On August 29, 2019 Continue Reading
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Latest news "Companies"