Business Context and Reporting Period
Company: FORM Holdings Corp. (Registrant) and XpresSpa Holdings, LLC (Target)
Date: August 8, 2016
Event: Entry into a Material Definitive Agreement (Merger Agreement).
On August 8, 2016, FORM Holdings Corp. entered into an Agreement and Plan of Merger to acquire XpresSpa Holdings, LLC, a leading airport retailer of spa services and related products. The transaction involves a merger of a FORM subsidiary with XpresSpa, resulting in XpresSpa becoming a wholly-owned subsidiary of FORM. XpresSpa's unitholders will receive FORM equity and warrants.
Key Financial Metrics and Transaction Terms
Merger Consideration:
- Common Stock: 2,500,000 shares of FORM Common Stock.
- Preferred Stock: 494,792 shares of Series D Convertible Preferred Stock (initial liquidation preference of $23,750,000).
- Warrants: Five-year warrants to purchase 2,500,000 shares of FORM Common Stock at an exercise price of $3.00 per share.
Private Placement and Debt Transactions:
- Subscription Sale: FORM agreed to sell 750,574 shares of Common Stock to Mistral Spa Holdings, LLC at $2.31 per share for an aggregate of $1,733,828.
- Preferred Unit Purchase: FORM agreed to purchase 1,733,826 Series C Preferred Units of XpresSpa at $1.00 per unit for an aggregate of $1,733,826. These units bear 12% PIK interest for the first year.
- Existing Debt: XpresSpa holds a senior secured note payable to Rockmore Investment Master Fund Ltd. with an outstanding balance of approximately $6,500,000.
- Escrow: Up to $12.55 million to be deposited into escrow accounts for indemnification claims.
Ownership Structure (Post-Merger):
- Former XpresSpa Unitholders: Approximately 18% of outstanding FORM Common Stock (33% on a fully diluted basis).
- Current FORM Stockholders: Approximately 82% of outstanding FORM Common Stock (67% on a fully diluted basis).
Financial Statements: The filing text does not provide specific revenue, profit, cash flow, or margin figures for either entity. It notes that XpresSpa will deliver consolidated financial statements to FORM within 20 days after the end of each fiscal month post-closing.
Material Changes and Conditions
Management Changes:
- Edward Jankowski (XpresSpa CEO) will continue in his current role.
- Andrew R. Heyer (XpresSpa board member) will join the FORM board of directors as the designee of Series D Preferred Stock holders.
Conditions to Closing:
- Approval by FORM stockholders and board of directors.
- Effectiveness of the Registration Statement (Form S-4).
- Listing approval of FORM Common Stock on The NASDAQ Capital Market.
- Receipt of joinder agreements from XpresSpa Unitholders representing 95% of outstanding units.
- Termination of the Monitoring and Management Services Agreement.
- Confirmation of compliance with loan documents by Rockmore Investment Master Fund Ltd.
Guidance, Risks, and Contingencies
Termination Fees:
- XpresSpa Termination Fee: $750,000 plus up to $500,000 in FORM's out-of-pocket fees if XpresSpa terminates for a superior proposal, breaches non-solicitation, or fails to close by the deadline and enters a competing transaction within six months.
- FORM Termination Fee: $750,000 plus up to $500,000 in XpresSpa's out-of-pocket fees if FORM fails to recommend the merger, fails to obtain stockholder approval, or fails to close by the deadline.
Risks and Contingencies:
- Completion Risk: The merger is subject to numerous conditions; FORM cannot predict the exact closing time.
- Market Risk: Risk that FORM may not maintain its listing on the NASDAQ Capital Market post-merger.
- Capital Risk: Inability to raise capital to fund operations and the business plan.
- Forward-Looking Statements: The filing contains forward-looking statements regarding the transaction's value and future operations, which are subject to risks and uncertainties.
Exemptions: FORM will grant an exemption to Mistral Spa Holdings, LLC under its Section 382 Rights Agreement to protect net operating loss carryforwards.
Investor Verification Checklist
- Verify the final terms of the Merger Agreement and the full text of the Certificate of Designation for Series D Convertible Preferred Stock (Exhibit 3.1).
- Confirm the effectiveness of the Form S-4 Registration Statement and the proxy statement/prospectus.
- Review the financial statements of XpresSpa to be delivered post-closing, as current revenue and profit metrics are not disclosed in this 8-K.
- Monitor the status of the $6.5 million senior secured note held by Rockmore Investment Master Fund Ltd. and its impact on the transaction.
- Check for any updates regarding the listing approval of FORM Common Stock on The NASDAQ Capital Market.
- Review the investor presentation (Exhibit 99.2) for detailed business projections and synergies.