Rafael Holdings, Inc. current report, 17 June 2021

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Business Context and Reporting Period

This Form 8-K, dated June 17, 2021, reports that Rafael Holdings, Inc. ("Holdings") entered into an Agreement and Plan of Merger with Rafael Pharmaceuticals, Inc. ("Pharma"). The transaction, approved by the Holdings Board and a special committee of independent directors, aims to make Pharma a wholly-owned subsidiary of Holdings. The filing details the structure of the merger, consideration for shareholders, and conditions precedent to closing.

Key Financial Metrics and Transaction Terms

The filing does not provide standard financial performance metrics such as revenue, profit, cash flow, or operating margins for the reporting period. Instead, it outlines specific financial terms of the proposed Business Combination:

  • Merger Consideration: Each outstanding share of Pharma capital stock will be exchanged for 0.1245 shares of Holdings Class B Common Stock.
  • Ownership Structure: Prior holders of Pharma capital stock will receive approximately 48% of the currently outstanding capitalization of Holdings, subject to dilution from contemplated financing and employment agreements.
  • Debt and Financing:
    • Pharma has an outstanding Line of Credit with a principal balance of $15 million, which will become due upon consummation of the Merger.
    • Pharma Convertible Notes are to be cancelled and converted into shares prior to closing.
    • A closing condition requires Holdings to consummate a private placement or public offering to raise $50 million in aggregate net proceeds.
  • Acquisition Cost: Holdings must acquire the remaining membership interest in Altira Capital & Consulting, LLC for $30 million in cash as a condition to closing.

Material Changes and Transaction Structure

The primary material change is the entry into a definitive merger agreement. The transaction involves a two-step merger process where Merger Sub I merges with Pharma, and the surviving entity merges into Merger Sub II. Key structural changes include:

  • Equity Impact: Existing Holdings equity remains outstanding, with new shares issued to Pharma shareholders.
  • Warrant Treatment: Unexercised Pharma warrants will be terminated or exchanged for Holdings warrants. The "56% Warrant" held by a subsidiary of Holdings will be terminated upon closing.
  • Lock-Up Agreements: Key stockholders of both entities have agreed to a six-month lock-up period on the transfer of Holdings Common Stock following the closing.
  • Debt Restructuring: The Line of Credit definition of "Change of Control" was amended to trigger repayment upon the Merger's consummation.

Guidance, Outlook, Risks, and Contingencies

Outlook and Timing: The Business Combination is expected to close in the third calendar quarter of 2021, subject to closing conditions. The Merger Agreement includes an "End Date" of December 15, 2021, which may be extended to February 1, 2022, if the SEC has not declared the Registration Statement effective 45 days prior to the End Date.

Conditions to Closing: The transaction is contingent upon:

  • Approval by Holdings stockholders (including a "Majority of the Minority" vote).
  • Approval by Pharma stockholders (including a "Majority of the Minority" vote).
  • Effectiveness of the Form S-4 Registration Statement.
  • NYSE listing approval.
  • Completion of the $30 million Altira acquisition.
  • Raising $50 million in net proceeds from equity financing.

Risks and Contingencies: The filing highlights significant risks, including the failure to obtain stockholder or regulatory approvals, inability to secure financing, disruption of operations, and the success of Pharma's lead product candidate, CPI-613 (devimistat). The filing also notes the impact of the COVID-19 pandemic and real estate market conditions as potential risk factors.

Investor Verification Checklist

  • Verify the approval status of the Form S-4 Registration Statement and the NYSE listing application.
  • Confirm the outcome of the stockholder votes for both Holdings and Pharma, specifically the "Majority of the Minority" requirements.
  • Monitor the progress of the $50 million equity financing required as a closing condition.
  • Review the definitive proxy statement/prospectus for detailed financial projections and risk factors not fully elaborated in this 8-K.
  • Assess the clinical trial status and commercialization potential of Pharma's lead product, CPI-613 (devimistat).
  • Confirm the execution of the $30 million cash acquisition of Altira Capital & Consulting, LLC.