Business Context and Reporting Period
Company: Rexahn Pharmaceuticals, Inc. (Ticker: REXN)
Date of Report: June 17, 2020
Event: Entry into a Material Definitive Agreement for a reverse merger with Ocuphire Pharma, Inc. ("Ocuphire"). Upon consummation, Rexahn will change its name to "Ocuphire Pharma, Inc." and trade under the symbol "OCUP" on the Nasdaq Capital Market. The transaction is structured as a tax-free reorganization.
Key Financial Metrics and Transaction Terms
Pre-Merger Financing: Investors agreed to invest $21.15 million in cash to fund the combined company.
Valuation: The financing is based on a pre-money valuation of the combined company of $120 million.
Ownership Structure (Post-Closing):
- Ocuphire Securityholders: Approximately 85.7% (assuming Rexahn net cash between $3.2M and $6.0M).
- Rexahn Stockholders: Approximately 14.3% (assuming Rexahn net cash between $3.2M and $6.0M).
- Adjustment: If Rexahn delivers $0 net cash (minimum required), Rexahn stockholders would own approximately 11.2%, and Ocuphire securityholders 88.8%. A floor of 9.1% ownership for Rexahn stockholders applies if Ocuphire waives the minimum net cash requirement.
Net Cash Requirement: Rexahn must deliver a minimum of $0 net cash at Closing. The Exchange Ratio is subject to adjustment based on actual net cash, which includes cash, short-term investments, and prepaid deposits, less liabilities, transaction expenses, and estimated warrant liabilities.
Termination Fee: $750,000 payable by either party under specified circumstances, or reimbursement of expenses up to $750,000.
Material Changes and Transaction Mechanics
Reverse Merger Structure: A wholly-owned subsidiary of Rexahn will merge with and into Ocuphire. Ocuphire will survive as a wholly-owned subsidiary of Rexahn.
Contingent Value Rights (CVRs): Rexahn stockholders will receive one CVR for each share held. CVRs entitle holders to receive payments over a 15-year term based on:
- 90% of payments from BioSense Global LLC and Zhejiang HaiChang Biotechnology Co., Ltd. related to specific license agreements.
- 75% of cash consideration from third-party deals involving Rexahn's pre-Closing intellectual property.
Management Changes:
- CEO: Mina Sooch (Ocuphire) is expected to serve as President and CEO of the combined company.
- Departure: Douglas J. Swirsky, current Rexahn CEO, will be terminated effective immediately after the Effective Time, triggering severance benefits under his employment agreement.
- Board: The new board will consist of seven members, including one current Rexahn director and six directors from Ocuphire or designated by Ocuphire.
- Series A Warrants: Exercise price at 120% of the Final Purchase Price; 5-year term; subject to price resets if the stock trades below the exercise price.
- Series B Warrants: Exercise price of $0.0001; subject to resets based on trading volume and price floors.
- Escrow Shares: Additional shares are held in escrow to be released to investors if the stock price falls below a certain threshold post-closing.
- Closing Conditions: Subject to stockholder approval of both companies, Nasdaq listing approvals, and completion of the Pre-Merger Financing.
- Net Cash Volatility: Rexahn's ownership percentage is highly sensitive to its net cash balance at Closing, which is impacted by warrant liabilities tied to stock volatility.
- Forward-Looking Statements: Actual results may differ due to regulatory approvals, clinical trial outcomes, and the impact of COVID-19.
- Lock-Up Agreements: Officers, directors, and certain stockholders are restricted from selling shares for 180 days post-closing. Investors are subject to leak-out agreements limiting daily sales to 30% of daily volume.
- Verify the final net cash balance of Rexahn at Closing to determine the exact Exchange Ratio and ownership percentage for existing Rexahn shareholders.
- Review the upcoming Form S-4 proxy statement/prospectus for detailed risk factors and voting instructions.
- Assess the dilution impact of the Series A and Series B warrants, particularly the reset provisions and the potential for significant share issuance if the stock price declines.
- Confirm the status of the Pre-Merger Financing closing, as the Merger is contingent upon its completion.
- Monitor the timeline for the termination of Douglas J. Swirsky and the associated severance costs.
Guidance, Risks, and Unusual Items
Financing Instruments: The Pre-Merger Financing includes complex warrant structures:
Key Risks and Contingencies: