HAPNW - An Interesting warrant opportunity
HAPC, Inc. (HAPN) is a blank check acquisition company that IPO'd on 4/18/06 raising app. $99 million (16.6 million units at $6.00 - 1 share and 2 warrants per unit with $5.00 exercise price). Its focus was the healthcare sector.
On 10/2/06 it announced an agreement to acquire InfuSystem, Inc., a subsiduary of I-Flow Corp. InfuSystem provides infusion pump management services to medical oncologists and is the nation's leading ambulatory pump provider in the chemotherapy infusion market.
On 12/28/06, the BOD Chairman (Sean McDevitt) bought 624,000 warrants at .70 direct from the company (a $437,000 investment). At the time, the warrants were selling on the open market at 25. - .30.
More recently, Mr. McDevitt and a Phillip B. Harris have guaranteed the breakup fee to I-Flow if the acquisition is not completed. (The breakup penalty will be either $1 or $ 3 million - see below for details). They gave a $3 million letter of credit to I-Flow to be drawn upon if the acquisition fails. The $1 million breakup fee is effective on April 30, 2007 if HAPC has not held the stockholder meeting seeking stockholder approval by that date (see below).
The following is from HAPC's Form 10K - 3/30/07, page 6.
Termination and Break Up Fee
In the event that the Stock Purchase Agreement is terminated (i) because of our failure to obtain stockholder approval by April 30, 2007 for any reason or (ii) because HAPC or our subsidiary is unwilling or unable to consummate the transactions contemplated by the Stock Purchase Agreement notwithstanding the fact that all conditions precedent to the Stock Purchase Agreement to be satisfied by I-Flow and InfuSystem (and the receipt of stockholder approval) have been satisfied or are capable of fulfillment, we must pay I-Flow a break up fee. In the event that I-Flow terminates the Stock Purchase Agreement after April 30, 2007 and the break up fee is payable for the sole reason that we have not held the stockholder meeting seeking stockholder approval by April 30, 2007, the break up fee will be $1,000,000. In all other cases where a break up fee is payable, the amount will be $3,000,000.
Payment of the break up fee has been guaranteed to I-Flow by Messrs. Sean McDevitt and Philip B. Harris pursuant to a Continuing Guaranty provided by the guarantors in favor of I-Flow and delivered concurrently with the execution of the Stock Purchase Agreement. Pursuant to the terms of a Guarantee Fee and Reimbursement Agreement entered into by us and the guarantors on September 29, 2006, we have agreed to pay the guarantors a fee of $100,000 upon delivery of the Continuing Guaranty and $300,000 upon closing of the transactions contemplated by, or the termination of, the Stock Purchase Agreement. We have also agreed to reimburse the guarantors for any payments actually made by them in connection with the Continuing Guaranty. Messrs. McDevitt and Harris have delivered to I-Flow a $3,000,000 letter of credit issued by JPMorgan for the benefit of I-Flow which I-Flow may draw upon in the event that the break up fees are not paid when due and payable.
Requirements of a Business Combination
If we are unable to consummate the business combination with InfuSystem, we will endeavor to consummate an alternative business combination satisfying the requirements of our amended and restated certificate of incorporation as more fully discussed below.
The the last paragraph is an important statement. Even if this acquisition fails, the warrants will not automatically become worthless. HAPC, Inc. will still have over five months to acquire a new company.
Currently the warrants have been selling in the .20-.30 range. If the acquisition goes through, they should be selling in the .60-.90 range, and higher if the market is favorable to the acquisition. The stock price is around $5.60-5.65.
According to this 10K, we have an April 30th deadline or Mr. McDevitt & Mr. Harris lose one million dollars. Don't know if they can make the deadline but I am buying the warrants and hope they are successful.
ChuckMicro |
