Filed Pursuant to Rule 424(b)(3)
Registration No. 333-261048
SUPPLEMENT NO. 3
(To Joint Proxy Statement/Prospectus dated January 7, 2022)
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This supplement (this “Supplement”)
supplements the Joint Proxy Statement/Prospectus dated January 7, 2022 (the “Joint Proxy Statement/Prospectus”), mailed to
shareholders of Creative Realities, Inc. (“Creative Realities” or “CRI”) on or about January 11, 2021 in connection
with the solicitation of proxies at the special meeting of the shareholders of Creative Realities to be held on January 28, 2022 (as
may be adjourned or postponed to a later date, the “Creative Realities Meeting”) and mailed to stockholders of Reflect Systems,
Inc. (“Reflect”) on or about January 7, 2022, in connection with the solicitation of proxies at the special meeting of the
stockholders of Reflect to be held on January 28, 2022 (as may be adjourned or postponed to a later date, the “Reflect Meeting”).
The Creative Realities Meeting and Reflect Meeting are being held to consider and vote upon certain proposals related to the Agreement
and Plan of Merger, or the “Merger Agreement,” dated November 12, 2021, among Creative Realities, Reflect and other parties
thereto, pursuant to which a direct, wholly owned subsidiary of Creative Realities, CRI Acquisition Corporation, or “Merger Sub,”
will merge with and into Reflect, with Reflect surviving as a wholly owned subsidiary of Creative Realities, and the surviving company
in the merger (the “Merger”). Capitalized terms used in this Supplement and not otherwise defined herein have the meanings
specified in the Joint Proxy Statement/Prospectus.
At the Creative Realities Meeting, Creative Realities
will ask its shareholders to vote on the following proposals, as more fully described Joint Proxy Statement/Prospectus: (i) the Share
Issuance Proposal, (ii) the Bonus Plan Proposal, (iii) the Advisory Compensation Proposal, and (iv) the Creative Realities Adjournment
Proposal, if presented (collectively, the “Creative Realities Proposals”). Creative Realities’ Board of Directors
unanimously determined and continues to recommend that Creative Realities’ shareholders vote “FOR” each of the Creative
Realities Proposals at the Creative Realities Meeting.
At the Reflect Meeting, Reflect will ask its
stockholders to vote on the following proposals, each as more fully described in the accompanying joint proxy statement/prospectus: (i) the
Merger Proposal, (ii) each of the Reflect Charter Amendment Proposals and (iii) the Reflect Adjournment Proposal (collectively,
the “Reflect Proposals”). Reflect’s Board of Directors unanimously determined that the Reflect Proposals are advisable,
fair to and in the best interests of Reflect and its stockholders and unanimously recommends that Reflect’s stockholders vote “FOR”
each of the Reflect Proposals.
This Supplement is not complete without the Joint
Proxy Statement/Prospectus. This Supplement should be read in conjunction with the Joint Proxy Statement/Prospectus and is qualified
by reference thereto, except to the extent that the information in this Supplement updates or supersedes the information contained in
the Joint Proxy Statement/Prospectus.
Neither the Securities and Exchange Commission
nor any state securities regulatory agency has approved or disapproved the transactions described in the Joint Proxy Statement/Prospectus
or any of the securities to be issued in the Merger, passed upon the merits or fairness of the Merger or related transactions or passed
upon the adequacy or accuracy of the disclosure in the Joint Proxy Statement/Prospectus or this Supplement. Any representation to the
contrary constitutes a criminal offense.
SEE “RISK FACTORS” ON PAGE 47
OF THE JOINT PROXY STATEMENT/PROSPECTUS FOR A SUMMARY OF CERTAIN RISKS YOU SHOULD CONSIDER IN CONNECTION WITH THE MERGER.
The date of this Supplement is February 8, 2022.
As previously disclosed in Supplement No. 1 to
the Joint Proxy Statement/Prospectus, CRI has been working diligently with its current lender, Slipstream Communications, LLC (the “Senior
Lender”), and its financial advisor, A.G.P./Alliance Global Partners, to secure the capital necessary to consummate the Merger
and have sufficient working capital for operation of the combined company after the Merger through the consummation of one or more financings
(the “Financings”).
To provide the stockholders of Creative Realities
and Reflect a reasonable time to review the likely material terms of the Financings in advance of considering the approval of the Creative
Realities Proposals and Reflect Proposals at the Creative Realities Meeting and Reflect Meeting, respectively, Creative Realities previously
convened and immediately adjourned the Creative Realities Meeting without considering the Creative Realities Proposals on January 28,
2022, to be reconvened at 9 a.m. (Eastern Time) on February 15, 2022, and Reflect previously convened and immediately adjourned the Reflect
Meeting without considering the Reflect Proposals on January 28, 2022, to be reconvened at 9 a.m. (Central Time) on February 15, 2022.
This Supplement is being filed to, among other things,
provide updated disclosures about the Creative Realities Proposals and Reflect Proposals taking into account the likely material terms
of the Financings, including but not limited to updates to the assumptions used about the Financings in the Joint Proxy Statement/Prospectus
in connection with pro forma financial information and dilution information presented in the Joint Proxy Statement/Prospectus. Creative
Realities recently consummated a private placement equity financing (the “Private Placement”) for gross proceeds of $11.0
million, the terms of which are set forth below. Creative Realities is in the process of negotiating the definitive terms by which the
Senior Lender intends to fund a $10.0 secured term loan at the closing of the Merger, as further described below (the “Anticipated
Debt Financing”). Creative Realities intends to use the net proceeds from the Private Placement and Anticipated Debt Financing to
fund the Cash Consideration payable at the closing of the Merger. In addition, on February 8, 2022, Creative Realities and Reflect executed
an amendment to the Merger Agreement (the “Amendment to the Merger Agreement”), pursuant to which, among other things, $2.5
million payable at closing of the Merger into an escrow account to secure the Reflect Stockholders’ indemnification obligations
will, as result of the Amendment, be evidenced by a secured promissory note, which will be due and payable on the one-year anniversary
of the closing. As a result of the Amendment to the Merger Agreement, Creative Realities believes that the consummation of the Private
Placement and Anticipated Debt Financing should provide sufficient capital to fund the entire Cash Consideration payable at the closing
of the Merger and the initial cash payable under the Retention Bonus Plan. The material terms of the Financings and the Amendment to the
Merger Agreement are more fully described below.
Creative Realities Adjournment
The record date for the Creative Realities Meeting
remains December 27, 2021. All votes that have been cast by Creative Realities shareholders with respect to the Creative Realities Proposals
will be cast at the Creative Realities Meeting once reconvened on February 15, 2022. Creative Realities shareholders may continue to cast
or change their votes on the Creative Realities Proposals until the Creative Realities Meeting is reconvened.
Reflect Meeting Adjournment
The record date for the Reflect Meeting remains January
3, 2022. All votes that have been cast by Reflect stockholders with respect to the Reflect Proposals will be cast at the Reflect Meeting
once reconvened on February 15, 2022. At an adjourned Reflect Meeting, all proxies will be voted in the same manner as they would have
been voted at the original convening of the Reflect Meeting, except for any proxies that have been effectively revoked or withdrawn prior
to the adjourned Reflect Meeting. Reflect stockholders may continue to cast or change their votes on the Reflect Proposals until the Reflect
Meeting is reconvened.
Private Placement
On February 3, 2022,
Creative Realities entered into and consummated a securities purchase agreement (the “Securities Purchase Agreement”) with
a purchaser (the “Purchaser”), pursuant to which Creative Realities agreed to issue and sell to the Purchaser, in a private
placement priced at-the-market under Nasdaq rules, (i) 1,315,000 shares (the “Shares”) of Creative Realities’ common
stock (the “Common Stock”) and accompanying warrants to purchase an aggregate of 1,315,000 shares of Common Stock, and (ii)
pre-funded warrants to purchase up to an aggregate of 5,851,505 shares of Common Stock (the “Pre-Funded Warrants”) and accompanying
warrants to purchase an aggregate of 5,851,505 shares of Common Stock. The accompanying warrants to purchase Common Stock are referred
to herein collectively as the “Common Stock Warrants.” Under the Securities Purchase Agreement, each Share and accompanying
warrants to purchase Common Stock were sold together at a combined price of $1.535, and each Pre-Funded Warrant and accompanying warrants
to purchase Common Stock were sold together at a combined price of $1.5349, for gross proceeds of approximately $11.0 million, before
deducting placement agent fees and estimated offering expenses payable by Creative Realities.
Each Pre-Funded Warrant
has an exercise price of $0.0001 per share, is exercisable immediately and is exercisable until the Pre-Funded Warrant is exercised in
full. The Common Stock Warrants expire five years from the date of issuance, have an exercise price of $1.41 per share and are exercisable
immediately.
Under the terms of the
Pre-Funded Warrants and the Common Stock Warrants, Creative Realities may not effect the exercise of any such warrant, and a holder will
not be entitled to exercise any portion of any such warrant, if, upon giving effect to such exercise, the aggregate number of shares
of Common Stock beneficially owned by the holder (together with its affiliates) would exceed 4.99% of the number of shares of Common
Stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the
terms of such warrant, which percentage may be increased or decreased at the holder’s election upon 61 days’ notice to Creative
Realities subject to the terms of such warrants, provided that such percentage may in no event exceed 9.99%.
In addition, Creative
Realities may not effect the exercise of any such warrant, and a holder will not be entitled to exercise any portion of any such warrant,
for a number of warrant shares in excess of that number of warrant shares which, upon giving effect to such exercise, would cause (i)
the aggregate number of shares of Common Stock beneficially owned by the holder (together with its affiliates) to exceed 19.99% of the
total number of issued and outstanding shares of Common Stock following such exercise, or (ii) the combined voting power of the securities
of Creative Realities beneficially owned by the holder (together with its affiliates) to exceed 19.99% of the combined voting power of
all of the securities of Creative Realities then outstanding following such exercise, in either case as such percentage ownership is
determined in accordance with the terms of such warrant, unless Creative Realities shareholder approval is obtained to exceed more than
such 19.99% of the total number of issued and outstanding shares of Common Stock following such exercise in accordance with the rules
of The Nasdaq Stock Market.
In certain circumstances,
upon a fundamental transaction of Creative Realities, the holders of Common Stock Warrants will have the right to require Creative Realities
to repurchase such warrants at their fair value using a Black Scholes option pricing formula; provided that such holder may not require
Creative Realities or its successor entity to repurchase such warrants for the Black Scholes value in connection with a fundamental transaction
that is not approved by the Board of Directors, and therefore not within Creative Realities’ control.
The Securities Purchase
Agreement contains customary representations, warranties and agreements by Creative Realities, customary conditions to closing, indemnification
obligations of Creative Realities and the Purchaser, including for liabilities arising under the Securities Act of 1933, as amended (the
“Securities Act”), other obligations of the parties and termination provisions.
Registration Rights Agreement
On February 3, 2022
(the “Agreement Date”), in connection with the Private Placement, Creative Realities entered into a registration rights agreement
(the “Registration Rights Agreement”) with the Purchaser, pursuant to which Creative Realities agreed to register for resale
the Shares, as well as the shares of Common Stock issuable upon exercise of the Pre-Funded Warrants and the Common Stock Warrants (the
“Warrant Shares”). Under the Registration Rights Agreement, Creative Realities has agreed to file a registration statement
covering the resale by the Purchaser of the Shares and Warrant Shares (together, the “Registrable Securities”) no later than
February 4, 2022. Creative Realities has agreed to use commercially reasonable efforts to cause such registration statement to become
effective and to keep such registration statement effective until the date the Shares and Warrant Shares covered by such registration
statement have been sold or may be resold pursuant to Rule 144 without restriction (the “Effectiveness Period”). Creative
Realities has agreed to be responsible for all fees and expenses incurred in connection with the registration of the Registrable Securities.
Creative Realities filed a registration statement covering the resale by the Purchaser of the Registrable Securities on February 4, 2022.
In the event (i) the
registration statement is not filed within the time period specified above, (ii) Creative Realities fails to file with the Securities
and Exchange Commission (the “SEC”) a request for acceleration of the registration statement in accordance with Rule 461within
five trading days of the date that Creative Realities is notified by the SEC that the registration statement will not be reviewed by
the SEC staff or is not subject to further comment by the SEC staff, (iii) Creative Realities fails to file a pre-effective amendment
and otherwise respond in writing to comments made by the SEC in respect of the registration statement within ten days after the receipt
of comments by or notice from the SEC that such amendment is required in order for the registration statement to be declared effective,
(iv) the registration statement has not been declared effective (A) by March 31, 2022 (or, in the event of a “full review”
by the SEC, the 60th day after the Agreement Date) or (B) within five trading days following the date Creative Realities is notified
by the SEC that the registration statement will not be reviewed or is no longer subject to further review and comments (provided that
such notification is received by Creative Realities on or prior to February 10, 2022), or (v) after the registration statement is declared
effective but prior to the end of the Effectiveness Period, the registration statement ceases for any reason to remain continuously effective
as to all Registrable Securities, or the holders of Registrable Securities are otherwise not permitted to utilize the prospectus in the
registration statement to resell such Registrable Securities, for more than ten consecutive days or more than an aggregate of 15 days
during any 12-month period, then Creative Realities has agreed to make pro rata payments to each holder as liquidated damages in an amount
equal to 2.0% of the aggregate amount invested by each such holder in the Registrable Securities then held by the holder per 30-day period
or pro rata for any portion thereof for each such month during which such event continues. To the extent a filing prior to the applicable
deadline of an amendment to the registration statement under clause (iii) above would require that Creative Realities file updated audited
financial statements by amendment to the registration statement pursuant to the Securities Act in advance of the applicable filing deadline
for such audited financial statements under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the applicable
filing deadline with respect thereto will instead be five trading days after the applicable Exchange Act deadline. In lieu of a cash
payment, the holder may elect, in its discretion, to receive the liquidated damages in the form of newly issued shares of Common Stock
(valued at $1.41 per share), or in Common Warrants to purchase the shares of Common Stock (having an aggregate exercise price equal to
the amount liquated damages otherwise payable in case; provided that Creative Realities shall not be required to issue any shares of
Common Stock or Common Warrants in violation of the listing rules of the Nasdaq Stock Market LLC. If Creative Realities fails to pay
any required liquidated damages in full within seven days after the date payable, Creative Realities will be required to pay interest
thereon to the holder at a rate of 18% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) until
paid in full.
Creative Realities has
granted the Purchaser customary indemnification rights in connection with the registration statement. The Purchaser has also granted
Creative Realities customary indemnification rights in connection with the registration statement. Subject to certain exceptions, Creative
Realities has also agreed not to file any other registration statements until 90 days after all Registrable Securities are registered
pursuant to a registration statement that is declared effective by the SEC.
Anticipated Debt Financing
Creative Realities anticipates
raising $10,000,000 in gross proceeds, or $9,950,000 in net proceeds, from entry into a new, 36-month senior secured term loan with the
Senior Lender. The term loan is expected to have an interest rate of 8.0%, with 50.0% warrant coverage and a warrant strike price of
$2.00 per share.
In addition to the new
senior secured term loan, Creative Realities also anticipates combining its pre-existing $4.767 million senior secured term loan and
$2.418 million secured convertible loan into a single, 36-month secured amortizing loan in the amount of approximately $7.185 million.
The secured amortizing loan is expected to have an interest rate of 10.0%, with 75.0% warrant coverage and a warrant exercise price of
$2.00 per share.
Creative Realities expects that the remaining
terms of the Anticipated Debt Financing would include terms customary for transactions of a similar nature. Although Creative Realities
currently expects that the Anticipated Debt Financing will be consummated upon the foregoing terms, there is no guarantee that such financing
will close upon such terms, or at all.
Amendment to the Merger Agreement
On February 8, 2022, the parties executed an
Amendment to the Merger Agreement, which is attached to this Supplement as Annex A. The following description of the terms and conditions
of the Amendment to the Merger Agreement and the exhibits thereto in this Supplement is a summary only and may not contain all of the
information that is important to you. To fully understand terms of the Amendment to the Merger Agreement and its exhibits, and their
effects on the Merger, you should carefully read the entire copy of the Amendment to the Merger Agreement and its exhibits.
The parties currently expect that the Anticipated
Debt Financing will be consummated on February 15, 2022, the date of the reconvening of the Creative Realities Meeting and of the Reflect
Meeting, and that the Merger will be consummated on such date. Accordingly, the parties agreed as part of the Amendment to the Merger
Agreement to extend the date on which Reflect or Creative Realities can terminate the Merger Agreement from January 31, 2022 to February
17, 2022.
The Amendment to the Merger Agreement provides
that in lieu of Creative Realities funding $2.5 million into an escrow account to secure the indemnification obligations of the Reflect
Stockholders, that such amount, and the promise to pay such amount in such escrow account, will be evidenced by Creative Realities’
and Reflect’s issuance of a $2.5 million Note and Security Agreement (the “Secured Promissory Note”) at the closing
of the Merger to the Stockholders’ Representative, for the benefit of all of the Reflect Stockholders. As a result, the Cash Consideration
payable at the closing of the Merger is being reduced from $18,666,667 to $16,166,667.
The Secured Promissory Note is attached as Exhibit
G to the Amendment to the Merger Agreement. The Secured Promissory Note accrues interest at 0.58% (the applicable federal rate) and requires
Creative Realities and Reflect to pay equal monthly principal installments of $104,166.67 on the fifteenth (15th) day of each month, commencing
on March 15, 2022 Any remaining or unpaid principal shall be due and payable on February 15, 2023. All payments under the Secured Promissory
Note will be paid to the Escrow Agent to be placed into the escrow account to secure the Reflect Stockholders’ indemnification obligations
until released on the one-year anniversary of the closing of the Merger, at which time any remaining proceeds not subject to a pending
indemnification claim will be paid to the Exchange Agent for payment to the Reflect Stockholders. The obligations of Creative Realities
and Reflect set forth in the Secured Promissory Note is secured by a first-lien security interest in various contracts of Reflect, together
with all accounts arising under such contracts, supporting obligations related to the accounts arising under such contracts, all related
books and records, and products and proceeds of the foregoing. Senior Lender will release its security interest in such collateral, and
the recourse for any breach of the Secured Promissory Note by Creative Realities or Reflect will be against such collateral. Creative
Realities has the right to offset amounts payable under the Secured Promissory Note upon a final, non-appealable decision of a court that
entitles Creative Realities or its affiliates to any damages for indemnification under the Merger Agreement, or the Stockholders’
Representative’s agreement in writing to such damages. The parties also agreed to a revised form of Escrow Agreement attached as
Exhibit E to the Amendment to the Merger Agreement to reflect the funding of the indemnification escrow account through payments made
pursuant to the Secured Promissory Note.
The Amendment to the Merger Agreement also specifies
that the Stockholders’ Representative has the power to give any and all consents and notices under the Escrow Agreement and Secured
Promissory Note, including with respect to payments under such agreements, that Stockholders’ Representative is permitted to act
as collateral agent for the Reflect Stockholders under the Secured Promissory Note, to exercise any and all rights related to the Secured
Promissory Note, and to enter into any and all agreements deemed necessary, appropriate or advisable by the Stockholders’ Representative
in connection therewith, in each case in the sole and absolute discretion of the Stockholders’ Representative.
The Amendment to the Merger Agreement states that
Creative Realities will reimburse Reflect up to $20,000 of Transaction Expenses associated with or relating to adjourning and reconvening
the Reflect Meeting, the drafting, negotiation and execution of Amendment to the Merger Agreement and the Secured Promissory Note, and
other amendments to transaction documents related to the Merger, dealings and negotiations with the Senior Lender, additional Reflect
Board calls, meetings and consents, additional SEC filings, and additional communications with Reflect Stockholders and associated work
with Reflect officers and advisors.
SELECTED
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(In
dollars except share amounts)
On
November 12, 2021, Creative Realities, Inc. (“Creative Realities”, the “Company”, or “Parent”), announced
the execution of an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Creative Realities will acquire
Reflect Systems, Inc. (“Reflect”) by the merger of its wholly owned subsidiary, CRI Acquisition Corporation, into Reflect,
with Reflect surviving such merger and becoming a wholly owned subsidiary of the Company. The acquisition of Reflect is expected
to close on or about February 15, 2022 and is referred to as the “Transaction.”
The
following unaudited pro forma condensed combined financial information is provided to aid you in your analysis of the financial aspects
of the Transaction and has been prepared in accordance with Article 11 of Regulation S-X, as amended by the final rule, release 33-10786
“Amendments to Financial Disclosures about Acquired and Disposed Businesses.”
The
unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2021 and for the twelve months
ended December 31, 2020 give effect to the acquisition of Reflect as if it had occurred on January 1, 2020 and combine the historical
statements of operations for both Creative Realities and Reflect for the respective periods presented.
The
unaudited pro forma condensed combined balance sheet as of September 30, 2021 gives effect to the acquisition of Reflect as if it had
occurred on September 30, 2021 and includes adjustments that give effect to factually supportable events that are directly attributable
to the Transaction.
The
notes to the unaudited pro forma condensed combined financial information describe the pro forma amounts and adjustments presented. The
unaudited pro forma condensed combined financial information are primarily based on and should be read in conjunction with the Company’s
historical consolidated financial statements and accompanying notes included in the Company’s periodic reports previously filed
with the Securities and Exchange Commission and any related amendments, along with the historical financial statements and accompanying
notes for Reflect included in reports previously filed with the Securities and Exchange Commission.
The
unaudited combined pro forma financial information does not include the realization of any cost savings from operating efficiencies,
synergies, dis-synergies or other restructuring activities which might result from the Transaction, and therefore, such charges
are not reflected in the unaudited condensed combined pro forma financial information.
The
pro forma adjustments reflecting the completion of the Transaction are based upon the acquisition method of accounting, under ASC 805
“Business Combinations,” in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”)
and upon the assumptions set forth in the Notes included in this section, with Creative Realities, Inc. deemed to be the acquirer for
financial accounting purposes. The pro forma adjustments related to the allocation of purchase price within the unaudited
pro forma condensed combined balance sheet are preliminary and subject to change and are based on the estimated fair value of the identifiable
assets acquired and liabilities assumed with the excess purchase price allocated to goodwill. The final purchase price allocation
will be completed no later than one year after the date of completion of the Transaction.
CREATIVE
REALITIES, INC.
UNAUDITED
PRO FORMA CONDENSED COMBINED BALANCE SHEETS
As
of September 30, 2021
(In
thousands)
|
|
CRI
|
|
|
RSI
|
|
|
Transaction
Accounting
Adjustments
|
|
|
Notes
|
|
|
Pro Forma
as Adjusted
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,772
|
|
|
$
|
3,886
|
|
|
$
|
(3,886
|
)
|
|
|
(e)
|
|
|
$
|
4,782
|
|
|
|
|
|
|
|
|
|
|
|
|
2,610
|
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(600
|
)
|
|
|
(l)
|
|
|
|
|
|
Accounts receivable, net
|
|
|
2,591
|
|
|
|
2,351
|
|
|
|
|
|
|
|
|
|
|
|
4,942
|
|
Unbilled receivables
|
|
|
180
|
|
|
|
-
|
|
|
|
18
|
|
|
|
(c)
|
|
|
|
198
|
|
Accrued revenue
|
|
|
-
|
|
|
|
18
|
|
|
|
(18
|
)
|
|
|
(c)
|
|
|
|
-
|
|
Work-in-process and inventories
|
|
|
1,952
|
|
|
|
174
|
|
|
|
-
|
|
|
|
|
|
|
|
2,126
|
|
Prepaid expenses and other current assets
|
|
|
1,517
|
|
|
|
105
|
|
|
|
-
|
|
|
|
|
|
|
|
1,622
|
|
TOTAL CURRENT ASSETS
|
|
|
9,012
|
|
|
|
6,534
|
|
|
|
(1,876
|
)
|
|
|
|
|
|
|
13,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
1,155
|
|
|
|
314
|
|
|
|
-
|
|
|
|
|
|
|
|
1,469
|
|
Capitalized software development costs
|
|
|
-
|
|
|
|
2,792
|
|
|
|
(2,792
|
)
|
|
|
(d)
|
|
|
|
-
|
|
Operating right of use assets
|
|
|
712
|
|
|
|
-
|
|
|
|
951
|
|
|
|
(f)
|
|
|
|
1,663
|
|
Intangibles, net
|
|
|
3,372
|
|
|
|
-
|
|
|
|
21,000
|
|
|
|
(d)
|
|
|
|
24,372
|
|
Goodwill
|
|
|
7,525
|
|
|
|
-
|
|
|
|
9,933
|
|
|
|
(g)
|
|
|
|
17,458
|
|
Deferred income tax asset, net
|
|
|
-
|
|
|
|
3,172
|
|
|
|
(3,172
|
)
|
|
|
(j)
|
|
|
|
-
|
|
Other assets
|
|
|
5
|
|
|
|
36
|
|
|
|
667
|
|
|
|
(k)
|
|
|
|
708
|
|
TOTAL ASSETS
|
|
$
|
21,781
|
|
|
$
|
12,848
|
|
|
$
|
24,711
|
|
|
|
|
|
|
$
|
59,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term related party convertible loans payable, net
|
|
$
|
1,209
|
|
|
$
|
-
|
|
|
$
|
(1,209
|
)
|
|
|
(a)
|
|
|
$
|
-
|
|
Accounts payable
|
|
|
1,554
|
|
|
|
645
|
|
|
|
-
|
|
|
|
|
|
|
|
2,199
|
|
Accrued expenses
|
|
|
1,694
|
|
|
|
323
|
|
|
|
445
|
|
|
|
(f)
|
|
|
|
2,462
|
|
Contract liabilities
|
|
|
-
|
|
|
|
2,563
|
|
|
|
(2,563
|
)
|
|
|
(c)
|
|
|
|
-
|
|
Deferred rent and tenant allowance, current portion
|
|
|
-
|
|
|
|
110
|
|
|
|
(110
|
)
|
|
|
(f)
|
|
|
|
-
|
|
Note payable, current portion
|
|
|
-
|
|
|
|
500
|
|
|
|
(500
|
)
|
|
|
(e)
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
(n)
|
|
|
|
|
|
Deferred revenue
|
|
|
770
|
|
|
|
-
|
|
|
|
2,563
|
|
|
|
(c)
|
|
|
|
3,333
|
|
Customer deposits
|
|
|
368
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
368
|
|
Other current liabilities
|
|
|
283
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
283
|
|
TOTAL CURRENT LIABILITIES
|
|
|
5,878
|
|
|
|
4,141
|
|
|
|
1,126
|
|
|
|
|
|
|
|
11,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term related party loans payable, net
|
|
|
4,595
|
|
|
|
-
|
|
|
|
7,316
|
|
|
|
(a)
|
|
|
|
7,316
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,595
|
)
|
|
|
(a)
|
|
|
|
|
|
Long-term related party convertible loans payable, net
|
|
|
1,042
|
|
|
|
-
|
|
|
|
3,250
|
|
|
|
(a)
|
|
|
|
4,292
|
|
Deferred rent and tenant allowance, net of current portion
|
|
|
-
|
|
|
|
147
|
|
|
|
(147
|
)
|
|
|
(f)
|
|
|
|
-
|
|
Note payable, net of current portion
|
|
|
-
|
|
|
|
708
|
|
|
|
(708
|
)
|
|
|
(e)
|
|
|
|
-
|
|
Accrued Expenses - noncurrent
|
|
|
29
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
29
|
|
Long-term obligations under operating leases
|
|
|
472
|
|
|
|
-
|
|
|
|
506
|
|
|
|
(f)
|
|
|
|
978
|
|
Contingent liability
|
|
|
-
|
|
|
|
-
|
|
|
|
6,067
|
|
|
|
(i)
|
|
|
|
6,067
|
|
TOTAL LIABILITIES
|
|
|
12,016
|
|
|
|
4,996
|
|
|
|
12,815
|
|
|
|
|
|
|
|
29,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TEMPORARY STOCKHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred stock, $0.001 par value; 3,000,000 shares authorized, issued and outstanding; $4,600,200 liquidation preference
|
|
|
-
|
|
|
|
2,303
|
|
|
|
(2,303
|
)
|
|
|
(h)
|
|
|
|
-
|
|
Series B preferred stock, $0.001 par value; 2,472,443 shares authorized, issued and outstanding; $4,089,421 liquidation preference
|
|
|
-
|
|
|
|
2,047
|
|
|
|
(2,047
|
)
|
|
|
(h)
|
|
|
|
-
|
|
Series C preferred stock, $0.001 par value; 10,400,000 shares authorized, issued and outstanding; $6,709,703 liquidation preference
|
|
|
-
|
|
|
|
3,359
|
|
|
|
(3,359
|
)
|
|
|
(h)
|
|
|
|
-
|
|
Series C-1 preferred stock, $0.001 par value; 8,000,000 shares authorized, issued and outstanding; $12,000,000 liquidation preference
|
|
|
-
|
|
|
|
6,008
|
|
|
|
(6,008
|
)
|
|
|
(h)
|
|
|
|
-
|
|
Series D preferred stock, $0.001 par value; 4,000,000 shares authorized, issued and outstanding; $4,000,000 liquidation preference
|
|
|
-
|
|
|
|
2,004
|
|
|
|
(2,004
|
)
|
|
|
(h)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL TEMPORARY STOCKHOLDERS’ EQUITY
|
|
|
-
|
|
|
|
15,721
|
|
|
|
(15,721
|
)
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY (DEFICIT):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value
|
|
|
119
|
|
|
|
6
|
|
|
|
(6
|
)
|
|
|
(h)
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
60,178
|
|
|
|
1,567
|
|
|
|
(1,567
|
)
|
|
|
(h)
|
|
|
|
75,300
|
|
|
|
|
|
|
|
|
|
|
|
|
10,147
|
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,975
|
|
|
|
(b)
|
|
|
|
|
|
Accumulated deficit
|
|
|
(50,532
|
)
|
|
|
(9,442
|
)
|
|
|
9,442
|
|
|
|
(h)
|
|
|
|
(45,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
2,634
|
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,554
|
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(600
|
)
|
|
|
(l)
|
|
|
|
|
|
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
9,765
|
|
|
|
(7,869
|
)
|
|
|
27,617
|
|
|
|
|
|
|
|
29,513
|
|
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
$
|
21,781
|
|
|
$
|
12,848
|
|
|
$
|
24,711
|
|
|
|
|
|
|
$
|
59,340
|
|
See
notes to unaudited pro forma consolidated financial information
CREATIVE
REALITIES, INC.
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For
the Year Ended December 31, 2020
(In
thousands, except per share data)
|
|
CRI
|
|
|
RSI
|
|
|
Transaction
Accounting
Adjustments
|
|
|
Notes
|
|
|
Pro Forma
as Adjusted
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales - Hardware
|
|
$
|
8,991
|
|
|
$
|
1,963
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
10,954
|
|
Sales - Services and Other
|
|
|
8,466
|
|
|
|
10,062
|
|
|
|
-
|
|
|
|
|
|
|
|
18,528
|
|
Total Sales
|
|
|
17,457
|
|
|
|
12,025
|
|
|
|
-
|
|
|
|
|
|
|
|
29,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales - Hardware
|
|
|
6,251
|
|
|
|
1,799
|
|
|
|
-
|
|
|
|
|
|
|
|
8,050
|
|
Cost of Sales - Services and Other
|
|
|
3,085
|
|
|
|
2,841
|
|
|
|
(472
|
)
|
|
|
(c)
|
|
|
|
5,454
|
|
Total Cost of Sales
|
|
|
9,336
|
|
|
|
4,640
|
|
|
|
(472
|
)
|
|
|
|
|
|
|
13,504
|
|
Gross profit
|
|
|
8,121
|
|
|
|
7,385
|
|
|
|
472
|
|
|
|
|
|
|
|
15,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
1,676
|
|
|
|
-
|
|
|
|
2,215
|
|
|
|
(c)
|
|
|
|
3,891
|
|
Research and development expenses
|
|
|
1,083
|
|
|
|
-
|
|
|
|
1,192
|
|
|
|
(c)
|
|
|
|
2,275
|
|
General and administrative expenses
|
|
|
9,293
|
|
|
|
-
|
|
|
|
3,460
|
|
|
|
(c)
|
|
|
|
13,253
|
|
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
|
(m)
|
|
|
|
|
|
Salaries and wages
|
|
|
-
|
|
|
|
5,825
|
|
|
|
(5,825
|
)
|
|
|
(c)
|
|
|
|
-
|
|
Contract labor and other employee expenses
|
|
|
-
|
|
|
|
240
|
|
|
|
(240
|
)
|
|
|
(c)
|
|
|
|
-
|
|
Selling expenses
|
|
|
-
|
|
|
|
550
|
|
|
|
(550
|
)
|
|
|
(c)
|
|
|
|
-
|
|
Rent Expense
|
|
|
-
|
|
|
|
331
|
|
|
|
(331
|
)
|
|
|
(c)
|
|
|
|
-
|
|
Depreciation and amortization expense
|
|
|
1,474
|
|
|
|
155
|
|
|
|
1,080
|
|
|
|
(c)
|
|
|
|
4,629
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,080
|
)
|
|
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
(d)
|
|
|
|
|
|
Lease termination expense
|
|
|
18
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
18
|
|
(Gain)/Loss Disposal of Assets
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
13
|
|
Goodwill impairment
|
|
|
10,646
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
10,646
|
|
Other operating expenses
|
|
|
-
|
|
|
|
530
|
|
|
|
(530
|
)
|
|
|
(c)
|
|
|
|
-
|
|
Total operating expenses
|
|
|
24,203
|
|
|
|
7,631
|
|
|
|
2,891
|
|
|
|
|
|
|
|
34,725
|
|
Operating loss
|
|
|
(16,082
|
)
|
|
|
(246
|
)
|
|
|
(2,419
|
)
|
|
|
|
|
|
|
(18,747
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(1,023
|
)
|
|
|
(96
|
)
|
|
|
3
|
|
|
|
(c)
|
|
|
|
(3,375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
96
|
|
|
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,023
|
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,519
|
)
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,859
|
)
|
|
|
(a)
|
|
|
|
|
|
Interest Income
|
|
|
-
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
(c)
|
|
|
|
-
|
|
(Gain)/Loss on FV of debt
|
|
|
(93
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(93
|
)
|
Gain on settlement of obligations
|
|
|
209
|
|
|
|
-
|
|
|
|
1,062
|
|
|
|
(c)
|
|
|
|
1,271
|
|
Forgiveness on PPP Loan
|
|
|
-
|
|
|
|
1,062
|
|
|
|
(1,062
|
)
|
|
|
(c)
|
|
|
|
-
|
|
Exchange gain loss
|
|
|
(13
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(13
|
)
|
Other income (expense), net
|
|
|
(920
|
)
|
|
|
969
|
|
|
|
(2,259
|
)
|
|
|
|
|
|
|
(2,210
|
)
|
Net income (loss) before income taxes
|
|
|
(17,002
|
)
|
|
|
723
|
|
|
|
(4,678
|
)
|
|
|
|
|
|
|
(20,957
|
)
|
Benefit/(provision) from income taxes
|
|
|
158
|
|
|
|
136
|
|
|
|
-
|
|
|
|
|
|
|
|
294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) / income
|
|
$
|
(16,844
|
)
|
|
$
|
859
|
|
|
$
|
(4,678
|
)
|
|
|
|
|
|
$
|
(20,663
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per common share
|
|
$
|
(1.65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.47
|
)
|
Diluted loss per common share
|
|
$
|
(1.65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
|
|
10,195
|
|
|
|
|
|
|
|
3,816
|
|
|
|
(b)
|
|
|
|
14,011
|
|
Weighted average shares outstanding - diluted
|
|
|
10,195
|
|
|
|
|
|
|
|
3,816
|
|
|
|
(b)
|
|
|
|
14,011
|
|
See notes to unaudited pro forma consolidated financial information
CREATIVE
REALITIES, INC.
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For
the Nine Months Ended September 30, 2021
(In
thousands, except per share data)
|
|
CRI
|
|
|
RSI
|
|
|
Transaction
Accounting
Adjustments
|
|
|
Notes
|
|
|
Pro Forma
as Adjusted
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales - Hardware
|
|
$
|
6,327
|
|
|
$
|
1,108
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
7,435
|
|
Sales - Services and Other
|
|
|
6,707
|
|
|
|
7,284
|
|
|
|
-
|
|
|
|
|
|
|
|
13,991
|
|
Total Sales
|
|
|
13,034
|
|
|
|
8,392
|
|
|
|
-
|
|
|
|
|
|
|
|
21,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales - Hardware
|
|
|
4,372
|
|
|
|
806
|
|
|
|
-
|
|
|
|
|
|
|
|
5,178
|
|
Cost of Sales - Services and Other
|
|
|
2,206
|
|
|
|
2,057
|
|
|
|
(405
|
)
|
|
|
(c)
|
|
|
|
3,858
|
|
Total Cost of Sales
|
|
|
6,578
|
|
|
|
2,863
|
|
|
|
(405
|
)
|
|
|
|
|
|
|
9,036
|
|
Gross profit
|
|
|
6,456
|
|
|
|
5,529
|
|
|
|
405
|
|
|
|
|
|
|
|
12,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
834
|
|
|
|
-
|
|
|
|
1,654
|
|
|
|
(c)
|
|
|
|
2,488
|
|
Research and development expenses
|
|
|
455
|
|
|
|
-
|
|
|
|
852
|
|
|
|
(c)
|
|
|
|
1,307
|
|
General and administrative expenses
|
|
|
5,623
|
|
|
|
-
|
|
|
|
2,668
|
|
|
|
(c)
|
|
|
|
8,666
|
|
|
|
|
|
|
|
|
|
|
|
|
375
|
|
|
|
(m)
|
|
|
|
|
|
Bad debt expense/(recovery), net
|
|
|
(463
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
(463
|
)
|
Salaries and wages
|
|
|
-
|
|
|
|
4,109
|
|
|
|
(4,109
|
)
|
|
|
(c)
|
|
|
|
-
|
|
Contract labor and other employee expenses
|
|
|
-
|
|
|
|
224
|
|
|
|
(224
|
)
|
|
|
(c)
|
|
|
|
-
|
|
Selling expenses
|
|
|
-
|
|
|
|
446
|
|
|
|
(446
|
)
|
|
|
(c)
|
|
|
|
-
|
|
Rent expense
|
|
|
-
|
|
|
|
266
|
|
|
|
(266
|
)
|
|
|
(c)
|
|
|
|
-
|
|
Depreciation and amortization expense
|
|
|
1,035
|
|
|
|
111
|
|
|
|
827
|
|
|
|
(c)
|
|
|
|
3,396
|
|
|
|
|
|
|
|
|
|
|
|
|
(827
|
)
|
|
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,250
|
|
|
|
(d)
|
|
|
|
|
|
Other operating expenses
|
|
|
-
|
|
|
|
558
|
|
|
|
(558
|
)
|
|
|
(c)
|
|
|
|
-
|
|
Total operating expenses
|
|
|
7,484
|
|
|
|
5,714
|
|
|
|
2,196
|
|
|
|
|
|
|
|
15,394
|
|
Operating loss
|
|
|
(1,028
|
)
|
|
|
(185
|
)
|
|
|
(1,791
|
)
|
|
|
|
|
|
|
(3,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(617
|
)
|
|
|
(57
|
)
|
|
|
57
|
|
|
|
(e)
|
|
|
|
(2,533
|
)
|
|
|
|
|
|
|
|
|
|
|
|
617
|
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,139
|
)
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,394
|
)
|
|
|
(a)
|
|
|
|
|
|
(Gain)/Loss on FV of debt
|
|
|
166
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
166
|
|
Gain on settlement of obligations
|
|
|
3,449
|
|
|
|
998
|
|
|
|
(998
|
)
|
|
|
(e)
|
|
|
|
3,449
|
|
Other
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
5
|
|
Exchange gain loss
|
|
|
(12
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(12
|
)
|
Other income (expense), net
|
|
|
2,991
|
|
|
|
(941
|
)
|
|
|
(2,857
|
)
|
|
|
|
|
|
|
1,075
|
|
Net income (loss) before income taxes
|
|
|
1,963
|
|
|
|
756
|
|
|
|
(4,648
|
)
|
|
|
|
|
|
|
(1,929
|
)
|
Benefit/(provision) from income taxes
|
|
|
(9
|
)
|
|
|
69
|
|
|
|
-
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net (loss) / income
|
|
$
|
1,954
|
|
|
$
|
825
|
|
|
$
|
(4,648
|
)
|
|
|
|
|
|
$
|
(1,869
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per common share
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.12
|
)
|
Diluted loss per common share
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
|
|
11,692
|
|
|
|
|
|
|
|
3,945
|
|
|
|
(b)
|
|
|
|
15,637
|
|
Weighted average shares outstanding - diluted
|
|
|
11,692
|
|
|
|
|
|
|
|
3,945
|
|
|
|
(b)
|
|
|
|
15,637
|
|
See notes to unaudited pro forma consolidated financial information
CREATIVE
REALITIES, INC.
NOTES
TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL
INFORMATION
NOTE
1 – BASIS OF PRESENTATION
The
accompanying unaudited pro forma condensed combined financial information is presented on a basis consistent with Creative Realities’
historical consolidated financial statements and is comprised of the following:
|
●
|
The unaudited pro forma
condensed combined balance sheet combines Creative Realities’ unaudited consolidated balance sheet and Reflect’s unaudited
balance sheet as of September 30, 2021.
|
|
●
|
The unaudited pro forma
condensed combined statements of operations for the year ended December 31, 2020 combines Creative Realities’ audited consolidated
statement of operations with Reflect’s audited statement of operations for the year ended December 31, 2020.
|
|
●
|
The unaudited pro forma
condensed combined statements of operations for the nine months ended September 30, 2021 combines Creative Realities’ unaudited
consolidated statement of operations with Reflect’s unaudited statement of operations for the nine month period ended September
30, 2021.
|
The
unaudited pro forma condensed combined financial information is presented for informational purposes only, does not reflect future events
that may occur after the Transaction, nor any estimates of operating efficiencies or inefficiencies that may result from the Transaction. The
unaudited pro forma combined statements of operations do not claim to represent our actual results of operations that would have occurred
if the Transaction had taken place on the dates specified, nor are they indicative of the results of operations that may be achieved
in the future.
NOTE
2 – PURCHASE PRICE ALLOCATION
The
purchase price summary and purchase price allocations are preliminary, subject to change and based on Reflect’s assets and liabilities
as of September 30, 2021. Final purchase price and purchase price allocations will be based on the fair value of identifiable assets
acquired and liabilities assumed in accordance with U.S. GAAP on the closing date of the Transaction. Creative Realities expects
to finalize the valuation and complete the purchase price summary and purchase price allocations as soon as practical, but no later than
one year from the acquisition date.
Estimated
Purchase Price Summary
For
purposes of the pro forma financial information, the following table presents the components of the purchase price consideration (amounts
in thousands), assuming an estimated working capital settlement and cash of zero:
Cash consideration for Reflect Stock
|
|
$
|
16,167
|
|
Cash consideration for Retention Bonus Plan
|
|
|
1,333
|
|
Consideration in the form of Creative Realities common stock issued to Reflect stockholders
|
|
|
4,667
|
|
Consideration in the form of Creative Realities common stock issued to the Retention Bonus Plan
|
|
|
333
|
|
Indemnity Escrow Note Payable
|
|
|
2,500
|
|
Excess Additional Contingent Merger Consideration based on key customer annualized recurring revenue targets, at estimated fair value
|
|
|
933
|
|
Base Additional Contingent Merger Consideration, at estimated fair value
|
|
|
5,134
|
|
Total consideration / purchase price
|
|
$
|
31,067
|
|
The
working capital settlement adjusts the base purchase price based on the excess or shortfall of current assets less current liabilities
of the Reflect on the acquisition date versus the working capital target date of zero dollars ($0). The cash settlement adjusts
the base purchase price upward by an amount equal to any unrestricted cash, and downward by the amount of any deficit, of unrestricted
cash of Reflect on the acquisition date. Settlement is due one hundred twenty (120) days after the closing date of the Transaction.
Estimated
Purchase Price Allocation
The
following represents the preliminary allocation of the purchase price to the acquired net tangible and intangible assets acquired
and liabilities assumed of Reflect and is for illustrative purposes only.
Accounts receivable
|
|
$
|
2,369
|
|
Inventory
|
|
|
174
|
|
Prepaid expenses and other current assets
|
|
|
105
|
|
Property and equipment
|
|
|
314
|
|
Operating right of use assets
|
|
|
951
|
|
Intangible assets:
|
|
|
|
|
Customer relationships
|
|
|
5,000
|
|
Technology
|
|
|
12,000
|
|
Trade name
|
|
|
4,000
|
|
Goodwill
|
|
|
9,933
|
|
Retention Plan Assets – Cash in Rabbi Trust
|
|
|
667
|
|
Other long-term assets
|
|
|
36
|
|
Accounts payable
|
|
|
(645
|
)
|
Accrued expenses
|
|
|
(768
|
)
|
Deferred revenues (e.g., Contract liabilities)
|
|
|
(2,563
|
)
|
Long-term obligations under operating leases
|
|
|
(506
|
)
|
Total purchase price
|
|
$
|
31,067
|
|
Goodwill
represents the excess of the purchase price over the fair value of tangible and intangible assets. Specifically identifiable definite-lived
intangible assets include trade name, customer relationships and technology platform. The Company will engage a third-party valuation
specialist to determine the final opening balance sheet fair value to be recorded related to these assets, which were preliminarily valued
based on the Company’s historical internal valuation methodologies. The Company has estimated the useful lives to be five, ten,
and five years for the customer relationship, technology, and trade name assets, respectively. No indefinite-lived intangible assets
were identified.
The
Merger Agreement stipulates payment of $4,667 and $333 to be paid in Creative Realities common stock at an issuance price of $2.00 per
share to the Reflect stockholders and the Retention Bonus Plan participants, respectively, at the Closing Date. Pursuant to the Retention
Bonus Plan, Creative Realities will issue additional shares having an aggregate value of $333 will be issued on the one-year and two-year
anniversaries of the Closing, subject to the terms and conditions of the Retention Bonus Plan. Section 1.12 of the Merger Agreement outlines
the potential Additional Contingent Merger Consideration due from Creative Realities associated with Creative Realities’ share
price performance following closing of the Transaction. Specifically, Creative Realities may be required to pay between zero ($0) and
$16,800 in incremental cash consideration to the Reflect stockholders should certain conditions be met and/or fail to be met.
The
Merger Agreement stipulates several scenarios under which Creative Realities would owe zero ($0) Additional Contingent Merger Consideration
to Reflect stockholders, including certain scenarios under which the Customer’s annualized recurring revenue run rate does achieve
the desired target. As a result, the contingent liability associated with the Additional Contingent Merger Consideration is complex and
is identified as Level 3 within the fair value hierarchy. For purposes of the preliminary opening balance sheet included within these
unaudited pro forma combined financial information and footnotes, we have recorded the liability at fifty percent (50%) of its potential
aggregate liability. Creative Realities will engage a third-party valuation specialist to determine the final opening balance sheet fair
value to be recorded related to the Additional Contingent Merger Consideration and potential liabilities.
NOTE
3 – PRO FORMA ADJUSTMENTS
The
following pro forma adjustments are reflected in the accompanying unaudited pro forma condensed combined financial information:
|
(a)
|
The principal sources and
uses of cash associated with the Transaction are anticipated as follows (in thousands of US Dollars):
|
|
|
Increase (decrease) in Cash
|
|
Cash raised through debt/warrant financing net of transaction fees
|
|
$
|
9,950
|
|
Cash raised through common stock/warrant private placement offering, net of transaction fees
|
|
|
10,160
|
|
Cash Merger Consideration paid for Reflect stock
|
|
|
(16,167
|
)
|
Cash consideration to fund Retention Bonus Plan:
|
|
|
|
|
● Paid at closing
|
|
|
(666
|
)
|
● Held in rabbi trust
|
|
|
(667
|
)
|
Pro forma adjustment
|
|
$
|
2,610
|
|
The
Transaction is anticipated to be funded via a combination of senior secured debt, the sale of Creative Realities common stock and warrants
in a private placement equity offering.
Private
Placement Equity Offering
On
February 3, 2022, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”), pursuant
to which the Company agreed to issue and sell in a private placement priced at-the-market under Nasdaq rules, (i) 1,315,000 shares of
the Company’s common stock, and accompanying warrants to purchase an aggregate of 1,315,000 shares of common stock, and (ii) pre-funded
warrants to purchase up to an aggregate of 5,851,505 shares of common stock (the “Pre-Funded Warrants”) and accompanying
warrants to purchase an aggregate of 5,851,505 shares of common stock (collectively, the “Private Placement”). The accompanying
warrants to purchase common stock are referred to herein collectively as the “Common Stock Warrants.” Under the Securities
Purchase Agreement, each share of common stock and accompanying warrants to purchase common stock were sold together at a combined price
of $1.535, and each Pre-Funded Warrant and accompanying warrants to purchase common stock were sold together at a combined price of $1.5349,
for gross proceeds of approximately $11,000, before deducting placement agent fees and estimated offering expenses payable by the Company.
The Private Placement closed on February 3, 2022. The Company intends to use the net proceeds totaling $10,160 from the Private Placement
to fund, in part, payment of the closing cash consideration for the Transaction.
Each
Pre-Funded Warrant has an exercise price of $0.0001 per share, is exercisable immediately and will be exercisable until the Pre-Funded
Warrant is exercised in full. The Common Stock Warrants expire five years from the date of issuance, have an exercise price of $1.41
per share and are exercisable immediately.
Under
the terms of the Pre-Funded Warrants and the Common Stock Warrants, the Company may not effect the exercise of any such warrant, and
a holder will not be entitled to exercise any portion of any such warrant, if, upon giving effect to such exercise, the aggregate number
of shares of common stock beneficially owned by the holder (together with its affiliates) would exceed 4.99% of the number of shares
of common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance
with the terms of such warrant, which percentage may be increased or decreased at the holder’s election upon 61 days’ notice
to the Company subject to the terms of such warrants, provided that such percentage may in no event exceed 9.99%.
Cash
and cash equivalents within unaudited pro forma combined balance sheet as of September 30, 20221 includes net proceeds of $10,160 from
the Private Placement, with incremental offering costs of $840 reflected as a reduction to additional paid-in-capital and $13 recorded
as common stock, representing $0.01 per share issued, as of the same date. The warrants issued in the transaction were valued utilizing
the Black-Scholes methodology and were deemed to be equity warrants for financial statement purposes.
Anticipated
Senior Secured Debt Financing
Separately,
Creative Realities anticipates raising $10,000 in gross proceeds, or $9,950 net of transaction fees from entry into a new, thirty-six
month senior secured term loan with its current creditor.. The term loan is expected to have an interest rate of 8.0% with 50.0% warrant
coverage and a warrant strike price of $2.00 per share. The $9,950 has been included within the unaudited pro forma combined balance
sheet as an increase to cash and cash equivalents, with a corresponding increase to long-term related party notes payable.
In
addition to the new senior secured debt financing, Creative Realities also anticipates combining its pre-existing $4,767 senior secured
term loan and $2,418 secured convertible loan into a single, thirty-six month secured amortizing loan in the amount of $7,185. The secured
amortizing loan is expected to have an interest rate of 10.0% with 75.0% warrant coverage and a warrant exercise price of $2.00 per share.
The
Company performed a Black-Scholes calculation to estimate the fair value of the warrants anticipated to be issued to the Company’s
current creditor utilizing the following assumptions: (i) warrant life of five (5) years, (ii) risk-free rate of one point two nine percent
(1.6%), and (iii) $2.00 per share exercise price. The value of the warrants were recorded as a debt discount, representing a reduction
to each tranche of debt in the pro forma condensed combined balance sheet as of September 30, 2021, which was allocated between short-term
and long-term based on the pro-rata portion of debt in each tranche. In aggregate the Company recorded a debt discount and an increase
to additional paid in capital of $5,577 for the estimated fair value of the warrants to be issued in the lending transaction in the unaudited
pro forma balance sheet as of September 30, 2021. The combined statement of income for the nine and twelve months ended September 30,
2021 and December 30, 2020, respectively, included incremental interest expense of $1,394 and $1,859 as a result of the straight-line
amortization of these debt issuance costs over the anticipated life of the loans.
The
unaudited pro forma combined statement of income for the nine and twelve months ended September 30, 2021 and December 30, 2020, respectively,
also included interest expense of $1,139 and $1,519 as a result of the stated interest rates on the $10,000 and $7,185, respectively,
of related party debt anticipated to be issued.
|
(b)
|
Creative Realities anticipates
the issuance of $4,667 and $333 of consideration to Reflect stockholders and Retention Bonus Plan participants, respectively, in
the form of shares of Creative Realities common stock. The Merger Agreement sets the issuance price for Creative Realities
common stock at $2.00 per share. The pro forma balance sheet and the pro forma calculations of weighted average shares outstanding
(basic and diluted) were calculated under the assumption utilizing $2.00 per share, resulting in an incremental $25 and $4,975 in
common stock and additional paid in capital in the pro forma consolidated balance sheet as of September 30, 2021.
|
|
(c)
|
Reclassifications to Reflect’s
historical audited and unaudited consolidated financial statements to conform to the financial statement classification and presentation
used by Creative Realities to prepare its consolidated financial statements.
|
|
(d)
|
To derecognize the $2.792
million previously recorded by Reflect for separately identified intangible assets (capitalized software development costs). As a
result of the derecognition of these assets, Creative Realities adjusted the unaudited pro forma condensed combined statement of
operations for the twelve months ended December 31, 2020 and the nine months ended September 30, 2021 for $1,080 and $827, respectively,
the amortization expense previously recorded. While fair value assessments have not yet been completed on these assets, for purposes
of preparing the unaudited pro forma condensed combined financial information, the fair value of Reflect’s separately identifiable
intangible assets has been estimated based on Creative Realities’ historical experience and knowledge of the Transaction. As
such, pro forma adjustments were recorded to the amortization expense included in the historic Reflect financial statements. Separately
identifiable intangible assets principally represent definite-lived assets, including trade name, customer relationships and technology
platform. The fair value of Creative Realities’ separately identifiable intangible assets will ultimately be estimated
with the assistance of Creative Realities’ third-party valuation specialist. Valuations of the acquired intangible assets are
expected to be finalized no later than one year from the date of acquisition. Any value assigned to these assets will represent a
reclassification to or from the goodwill asset recorded in Creative Realities’ preliminary purchase price allocation as outlined
in the table in Note 2. Any reclassification recorded could result in further adjustments to the pro forma condensed combined financial
information, including but not limited to adjustments to amortization expense, deferred tax liabilities and income tax expense.
|
|
(e)
|
Pro forma adjustments for
non-acquired assets and liabilities. To derecognize the $3,886 of cash and $1,208 of notes payable recorded by Reflect from the pro
forma condensed combined balance sheet as of September 30, 2021 as the Transaction will be consummated on a cash-free, debt-free
basis. Incremental interest expense of $96 and $57 has been eliminated from the unaudited pro forma condensed combined statements
of operations for the twelve months ended December 31, 2020 and the nine months ended September 30, 2021.
|
|
(f)
|
To reflect the adoption
of ASC 842, “Leases”, this adjustment derecognizes the current and long-term portion of the deferred rent of $110 and
$147, respectively, from the Reflect balance sheet as of September 30, 2021 and recorded an operating right of use asset of $951
associated with Reflect’s remaining office lease in Richardson, Texas. An adjustment was also included to recognize the associated
operating lease liabilities of $445 and $506 in accrued expenses and long-term obligations under operating leases in the pro forma
condensed combined balance sheet as of September 30, 2021.
|
|
(g)
|
To recognize goodwill for
the excess of the purchase price over the fair value of tangible and intangible assets.
|
|
(h)
|
To eliminate Reflect’s
historical stockholders’ equity.
|
|
(i)
|
To
recognize a liability in the unaudited pro forma condensed combined balance sheet as of September 30, 2021 for the estimated fair
value of the contingent consideration payment. The Merger Agreement contemplates Additional Contingent Merger Consideration of up
to $16,800 to be paid by Creative Realities to Reflect stockholders in the event that (1) certain conditions are satisfied by Reflect’s
customer(s), (2) the Reflect stockholders continue to hold Creative Realities common stock originally issued as consideration in
the Transaction, and either (3a) Company’s common stock does not achieve either certain volume and price levels during the
three (3) or three and one half (3.5) years following the Closing Date, or (3b) the ten day volume weighted average price (VWAP)
of the Company’s share price is not above $6.40 or $7.20, as applicable, as of the measurement period to be either three (3)
or three and one half (3.5) years following the Closing Date, as further outlined in Note 1 and Section 1.12 of the Merger Agreement.
ASC
805 requires recognition of the fair value of this contingent consideration transferred in exchange for an acquired business. For
purposes of the preliminary opening balance sheet included within these unaudited pro forma condensed combined financial information,
Creative Realities has estimated the liability at fifty percent (50%) of its potential aggregate liability. Creative Realities will
engage a third-party valuation specialist to determine the final opening balance sheet fair value to be recorded related to the contingent
consideration, with any adjustments in the estimated liability to be recorded as an adjustment to goodwill upon completion. Adjustments
to the fair value of the contingent consideration following the establishment of the opening balance sheet will be recorded through
the consolidated statement of operations.
|
|
(j)
|
To record a valuation allowance
of $3,172, representing 100% of the deferred tax assets related to net operating losses. The Reflect historical financial statements
did not record a valuation allowance on net operating losses; however, as the unaudited pro forma condensed combined balance sheet
as of September 30, 2021 indicates an accumulated deficit, an adjustment to reserve against these deferred tax assets and by reducing
income tax benefit in the pro forma condensed combined statements of operations.
|
|
(k)
|
To recognize the cash portion
of the Retention Bonus Plan assets placed in escrow at close. The portion of the Retention Bonus Plan assets not disbursed at the
time of close have been included in the unaudited pro forma condensed combined balance sheet as of September 30, 2021 in the amount
of $667. The liability related to post-combination services will be charged through the combined company statement of operations
for the unvested portion of share issuance at time of close.
|
|
(l)
|
To expense estimated third
party transaction costs associated with executing the Transaction.
|
|
|
|
|
(m)
|
To recognize retention
expense related to the vesting of service awards under the Retention Bonus Plan post close in an amount of $375 and $500 for the
nine and twelve months ended September 30, 2021 and December 30, 2020, respectively.
|
|
|
|
|
(n)
|
To recognize retention
a liability of $2,500 in the form of a Note Payable to escrow for indemnity claims. The parties agreed to fund the escrow via a note
to be paid over the course of the first year following the merger, comprising of 12 equal monthly installments of $104, with a balloon
payment of $1,250 on the anniversary date of the Transaction.
|
DILUTION
Creative Realities’ net tangible book value
as of September 30, 2021 was $(1,133,243), or $(0.09) per share, based on 11,919,460 shares of Creative Realities common stock outstanding
as of that date. After giving effect to (i) the issuance of 2,666,667 shares of Creative Realities common stock at the issuance price
of $2.00 per share in conjunction with the Merger and Retention Bonus Plan, (ii) the issuance of 1,315,000 common stock issued in the
Private Placement on February 3, 2022 and the receipt of $11,000,000 of gross proceeds in the Private Placement, but excluding any of
the Common Stock Warrants or Pre-Funded Warrants issued in the Private Placement, (iii) anticipated gross proceeds of $10,000,000 via
the Anticipated Debt Financing, (iv) the transaction expenses incurred as a result of the financing and acquisition activities, and (v)
the utilization of $17,500,000 of cash to close the acquisition of Reflect, Creative Realities’ as adjusted net tangible book value
as of September 30, 2021 would have been $876,717, or $0.06 per share.
This represents an immediate increase in net
tangible book value of $0.15 per share to existing Creative Realities shareholders and immediate dilution of $1.94 per share to Reflect
stockholders and Retention Bonus Plan participants receiving shares of Creative Realities common stock in the Merger and the Retention
Bonus Plan, as illustrated by the following table:
Estimated issuance price per share
|
|
|
|
|
|
$
|
2.00
|
|
Net tangible book value per share as of September 30, 2021
|
|
$
|
(0.09
|
)
|
|
|
|
|
Increase in net tangible book value per share attributable to Reflect stockholders, Anticipated Debt Financing,
and Private Placement
|
|
$
|
0.15
|
|
|
|
|
|
As adjusted net tangible book value per share after giving effect to the Merger, adoption of Retention Bonus
Plan, Anticipated Debt Financing, and Private Placement
|
|
|
|
|
|
$
|
0.06
|
|
Dilution per share to Reflect stockholders and Retention Bonus Plan participants
|
|
|
|
|
|
$
|
1.94
|
|
The table above assumes for illustrative purposes
that an aggregate of (i) 2,666,667 shares of our common stock are issued at a price of $2.00 per share, the issuance price in conjunction
with the Merger Agreement, as aggregate consideration of $5,333,334, and (ii) the initial issuance price of shares pursuant to the Retention
Bonus Plan, as aggregate payments of $5,333,334. Shares of Creative Realities common stock issuable under the Retention Bonus Plan on
the Closing having an aggregate value of $333,334 will be valued at $2.00 per share and the share of Creative Realities common stock issuable
under the Retention Bonus Plan on the one-year and two-year anniversaries of the Closing having an aggregate value of $333,334 will be
valued based on dividing the value of shares issuable on such date divided by the trailing 10-day volume weighed average price (VWAP)
of the shares as of such date, which may be more or less than $2.00 per share. As a result, the number of shares issuable may be more
or less than the number of shares issuable at $2.00 per share indicated above. A $0.50 increase or decrease in the price at which the
shares are issued from the assumed issuance prices per share, would increase or decrease, respectively, our as adjusted net tangible book
value per share by less than $0.50 per share, and the dilution per share to Reflect stockholders in the merger by approximately $0.50
per share, after deducting estimated commissions and estimated offering expenses payable by us. The as adjusted information provided above
is illustrative only.
The estimated number of shares of Creative Realities
common stock to be outstanding immediately after the Merger is based on 11,919,460 shares outstanding as of September 30, 2021 without
regard for shares underlying option awards issued to Creative Realities’ management, and excludes:
|
●
|
1,813,809 shares of Creative Realities common stock
issuable upon the exercise of stock options outstanding at September 30, 2021 with a weighted average exercise price of approximately
$3.48 per share;
|
|
●
|
800,000 shares of Creative Realities common stock issuable
upon the exercise of stock options with an exercise price of $2.53 per share awarded to Creative Realities’ management as of June 1,
2020, the exercise of which is contingent upon satisfaction of certain performance metrics between now and December 31, 2022;
|
|
●
|
4,162,962 shares of Creative Realities common stock
issuable upon the exercise of outstanding or issuable warrants at September 30, 2021 with a weighted average exercise price of approximately
$4.50 per share;
|
|
●
|
5,194,495 shares of common stock issuable upon the exercise
of warrants to be issued as part of the Anticipated Debt Financing in February 2022, with a weighted average exercise price of approximately
$2.00 per share;
|
|
●
|
7,166,505 shares of common stock issuable upon the exercise
of outstanding warrants issued in the Private Placement on February 3, 2022, with a weighted average exercise price of approximately
$1.41 per share; and
|
|
●
|
5,851,505 shares of common stock issuable upon the exercise
of outstanding pre-funded warrants issued in the Private Placement on February 3, 2022, with a weighted average exercise price of approximately
$1.535 per share, of which $1.5349 was pre-funded during the Private Placement.
|
As of February 8, 2022, the total number of Creative
Realities outstanding shares of Common Stock was 13,323,519 shares.
To the extent that additional shares are issued
pursuant to the foregoing, Reflect stockholders will experience further dilution. In addition, Creative Realities may offer other securities
in offerings due to market conditions or strategic considerations. To the extent it issues such securities, investors and Reflect stockholders
may experience further dilution.
BENEFICIAL
OWNERSHIP OF SECURITIES OF CREATIVE REALITIES
The following table sets forth the number of
Creative Realities Shares, and percentage of outstanding Creative Realities Shares, beneficially owned as of February 8, 2022, by:
● each
person known by Creative Realities to be the beneficial owner of more than five percent of Creative Realities outstanding common stock;
● each
current director;
● each
executive officer of Creative Realities and other persons identified as a named executive in this joint proxy statement/prospectus; and
● all
current executive officers and directors as a group.
Unless otherwise indicated, the address of each
of the following persons is 13100 Magisterial Drive, Suite 100, Louisville, KY 40223, and each such person has sole voting and
investment power with respect to the shares set forth opposite his, her or its name.
The expected beneficial ownership of Creative
Realities Shares pre-Merger is based on 13,323,519 Creative Realities Shares issued and outstanding as of February 8, 2022 as a result
of the consummation of the Private Placement, and does not take into account, (i) any Creative Realties Shares issued to Reflect
stockholders in connection with the Merger, (ii) any Creative Realties Shares issued to Reflect employees in connection with the
Retention Bonus Plan, or (iii) any Creative Realities Shares or warrants issued in the Anticipated Debt Financing. The expected beneficial
ownership post-Merger: (i) assumes the issuance of an aggregate of 2,333,334 Creative Realities Shares, based on an issuance price
equal to $2.00 per share to Reflect stockholders in the Merger, (ii) assumes the issuance of an aggregate of 333,334 Creative Realities
Shares, based on an assumed issuance price equal to $2.00 per share to Reflect employees as part of the Retention Bonus Plan, (iii) assumes
the issuance of warrants to purchase 5,194,495 Creative Realities Shares to Slipstream Communications, LLC (“Slipstream”)
as part of the Anticipated Debt Financing, (iv) includes the issuance of pre-funded warrants to purchase up to an aggregate of 5,851,505
shares of Common Stock and accompanying warrants to purchase an aggregate of 5,851,505 shares of Common Stock as a result of the Private
Placement; and (v) excludes any other Creative Realities Shares or Convertible Securities (other than the warrants set forth in paragraph
(iii) issued in any financing prior to, or in connection with, the Merger (which if issued, would result in additional Creative Realities
Shares being outstanding).
Information concerning the stock ownership of
Reflect’ officers, directors and 5% stockholders is set forth under “Beneficial Ownership of Securities of Reflect.”
Name and Address
|
|
Common
Shares
Beneficially
Owned
Pre-Merger(1)
|
|
|
Percentage of
Common
Shares
Pre-Merger(1)
|
|
|
Common
Shares
Beneficially
Owned
Post-Merger
(estimate)
|
|
|
Percentage of
Common
Shares
Post-Merger (estimate)
|
|
Armistice Capital Master Fund Ltd. (2)
|
|
|
1,315,000
|
|
|
|
9.87
|
%
|
|
|
1,315,000
|
|
|
|
8.22
|
%
|
Slipstream Funding, LLC(3)
c/o Pegasus Capital Advisors, L.P.
750 E Main St., Suite 600
Stamford, CT 06902
|
|
|
952,365
|
|
|
|
7.15
|
%
|
|
|
952,365
|
|
|
|
5.96
|
%
|
Slipstream Communications, LLC(4)
c/o Pegasus Capital Advisors, L.P.
750 E Main St., Suite 600
Stamford, CT 06902
|
|
|
8,963,974
|
|
|
|
49.77
|
%
|
|
|
14,158,469
|
|
|
|
66.83
|
%
|
Stephen Nesbit(5)
|
|
|
73,981
|
|
|
|
*
|
|
|
|
73,981
|
|
|
|
*
|
|
Donald A. Harris(6)
|
|
|
220,023
|
|
|
|
1.65
|
%
|
|
|
220,023
|
|
|
|
1.38
|
%
|
Dennis McGill(7)
|
|
|
89,296
|
|
|
|
*
|
|
|
|
89,296
|
|
|
|
*
|
|
David Bell(8)
|
|
|
73,981
|
|
|
|
*
|
|
|
|
73,981
|
|
|
|
*
|
|
Richard Mills(9)
|
|
|
1,076,904
|
|
|
|
7.89
|
%
|
|
|
1,076,904
|
|
|
|
6.73
|
%
|
Will Logan(10)
|
|
|
247,318
|
|
|
|
1.83
|
%
|
|
|
247,318
|
|
|
|
1.55
|
|
All current executive officers and directors as a group(11)
|
|
|
1,781,503
|
|
|
|
11.79
|
%
|
|
|
1,781,503
|
|
|
|
11.14
|
%
|
* less
than 1%
(1)
|
|
Beneficial ownership is determined in accordance with the rules of the SEC, and includes
general voting power and/or investment power with respect to securities. Shares of common stock issuable upon exercise of options
or warrants that are currently exercisable or exercisable within 60 days of February 8, 2022, and shares of common stock issuable
upon conversion of other securities currently convertible or convertible within 60 days, are deemed outstanding for computing the
beneficial ownership percentage of the person holding such securities but are not deemed outstanding for computing the beneficial ownership
percentage of any other person. Under applicable SEC rules, each person’s beneficial ownership is calculated by dividing the total
number of shares with respect to which they possess beneficial ownership by the total number of outstanding shares of Creative Realities.
In any case where an individual has beneficial ownership over securities that are not outstanding, but are issuable upon the exercise
of options or warrants or similar rights within the next 60 days, that same number of shares is added to the denominator in the
calculation described above. Because the calculation of each person’s beneficial ownership set forth in the “Percentage of
Common Shares” column of the table may include shares that are not presently outstanding, the sum total of the percentages set
forth in such column may exceed 100%.
|
|
|
|
(2)
|
|
Armistice Capital Master Fund Ltd., a Cayman Islands exempted company, or the Master Fund, holds (i) 1,315,000
shares of common stock, (ii) Pre-Funded Warrants to purchase 5,851,505 shares of Creative Realities common stock, and (iii) Common Warrants
to purchase up to 7,166,505 shares of Creative Realities common stock. The Pre-Funded Warrants and Common Warrants are each subject to
certain beneficial ownership limitations that prohibit the Master Fund from exercising any portion of either of them if, following the
exercise, the Master Fund’s ownership of Creative Realities common stock would exceed the relevant warrant’s ownership limitations.
The shares held by the Master Fund may be deemed to be indirectly beneficially owned by: (i) Armistice Capital, LLC, or Armistice Capital,
as the investment manager of the Master Fund, and (ii) Steven Boyd, as the Managing Member of Armistice Capital. Armistice Capital and
Mr. Boyd disclaim beneficial ownership of the securities except to the extent of their respective pecuniary interests therein.
|
(3)
|
|
Investment and voting power over shares held by Slipstream Funding, LLC is held by Slipstream
Communications, LLC, its sole member, and may deemed to be directly or indirectly controlled by Craig Cogut, Chairman and Chief Executive
Officer of Pegasus Capital Advisors, LLC. See table footnote 3 for further information regarding Slipstream Communications, LLC.
|
(4)
|
|
Investment and voting power over shares held by Slipstream Communications, LLC may be deemed
to be directly or indirectly controlled by Craig Cogut, Chairman and Chief Executive Officer of Pegasus Capital Advisors, LLC. Slipstream
Communications, LLC (“Slipstream Communications”) is the sole member of Slipstream Funding, LLC (“Slipstream Funding”).
BCOM Holdings, LP (“BCOM Holdings”) is the managing member of Slipstream Communications. BCOM GP LLC (“BCOM GP”)
is the general partner of BCOM Holdings. Business Services Holdings, LLC (“Business Services Holdings”) is the sole member
of BCOM GP. PP IV BSH, LLC (“PP IV BSH”), Pegasus Investors IV, L.P. (“Pegasus Investors”)
and Pegasus Partners IV (AIV), L.P. (“Pegasus Partners (AIV)”) are the members of Business Services Holdings. Pegasus
Partners IV, L.P. (“Pegasus Partners”) is the sole member of PP IV BSH. Pegasus Investors IV, L.P. (“Pegasus
Investors”) is the general partner of each of Pegasus Partners (AIV) and Pegasus Partners and Pegasus Investors IV GP,
L.L.C. (“Pegasus Investors GP”) is the general partner of Pegasus Investors. Pegasus Investors GP is wholly owned by Pegasus
Capital, LLC (“Pegasus Capital”). Pegasus Capital may be deemed to be directly or indirectly controlled by Craig Cogut. The
share figure includes the 952,365 shares of common stock issued to and held by Slipstream Funding, LLC. Share figure also includes
4,687,521 common shares purchasable upon exercise of outstanding warrants issued to and held by Slipstream Communications, LLC. Share
figure excludes shares that may, at the election of Creative Realities, be issued by Creative Realities to Slipstream Communications
or its designees in lieu of making cash payments under the Amended and Restated Loan and Security Agreement dated March 7, 2021
by and among Creative Realities, its subsidiaries and Slipstream Communications, which terms are expected to be removed as part of the
Anticipated Debt Financing. Post-Merger share figure assumes the issuance of warrants to purchase 5,194,495 Creative Realities Shares
in connection with the Anticipated Debt Financing anticipated to occur in advance of the Closing.
|
(5)
|
|
Mr. Nesbit is a director of Creative Realities. Share figure includes 20,000 shares
purchasable upon the exercise of outstanding options.
|
(6)
|
|
Mr. Harris is a director of Creative Realities. Share figure includes (i) 9,130 shares
purchasable upon the exercise of outstanding warrants, (ii) 8,524 shares issued to Five Star Partnership Ltd., of which Mr. Harris
is a principal and has voting and investment power over such shares, and (iii) 20,000 shares purchasable upon the exercise of outstanding
options.
|
(7)
|
|
Mr. McGill is a director of Creative Realities and Chairman of the Board. Share figure
includes (i) 41,667 shares purchasable upon the exercise of outstanding options.
|
(8)
|
|
Mr. Bell is a director of Creative Realities. Share figure includes 20,000 shares
purchasable upon the exercise of outstanding options.
|
(9)
|
|
Mr. Mills is a director of Creative Realities and Chief Executive Officer. Share figure
includes 87,976 shares issued to RFK Communications, LLC, of which Mr. Mills is a principal and has voting and investment
power over such shares. Share figure includes 320,000 shares purchasable upon the exercise of outstanding options.
|
(10)
|
|
Mr. Logan is the Chief Financial Officer of Creative Realities. Share figure includes
191,667 shares purchasable upon the exercise of outstanding options.
|
(11)
|
|
Includes Messrs. McGill, Mills, Bell, Harris, Nesbit and Logan.
|
UPDATED CREATIVE REALITIES PROPOSAL:
THE SHARE ISSUANCE PROPOSAL
In light of the consummation of the Private Placement and the projected
terms of the Anticipated Debt Financing, Creative Realities is updating the disclosures with respect to the Share Issuance Proposal as
follows:
Overview
At the Creative Realities Meeting, Creative Realities
will ask its shareholders to vote upon and approve, for purposes of complying with applicable Nasdaq listing rules, the issuance of securities
that exceed 20% of Creative Realities’ issued and outstanding shares of common stock, as well as the issuance of securities whose
potential issuance will result in a change of control of Creative Realities.
Nasdaq Listing Rule 5635(a) requires
stockholder approval where, among other things, the issuance of securities in a transaction exceeds 20% of the number of shares of common
stock or the voting power outstanding before the transaction.
Nasdaq Listing Rule 5635(b) requires stockholder
approval prior to the issuance of securities when the issuance or potential issuance will result in a change of control of the company.
Prior to the Private Placement, Creative Realities
had 12,005,129 Creative Realities Shares outstanding, and as a result of the Private Placement, Creative Realties had 13,323,519 Creative
Realities Shares outstanding as of February 8, 2022. Nasdaq may integrate the securities issued and issuable in the Private Placement
(including the shares issuable upon the exercise of the Common Stock Warrants and Pre-Funded Warrants) with the following issuances of
Creative Realities Shares in connection with the Merger for purposes of determining whether Nasdaq Listing Rules 5635(a) and 5635(b) require
stockholder approval: (i) the issuance to stockholders of Reflect as Merger Consideration pursuant to the Merger Agreement, and (ii) issuable
to the Senior Lender in the Anticipated Debt Financing, including Creative Realities shares issuable upon the exercise of any warrants
that may be issued in such financing.
Since the issuance of securities mentioned above
will exceed 20% of Creative Realities’ currently outstanding shares of common stock, Creative Realities is required to obtain approval
of its shareholders under Nasdaq Listing Rule 5635(a), and since such issuance would result in a change of control, Creative Realities
is required to obtain approval of its shareholders under Nasdaq Listing Rule 5635(b).
As noted above in the description of the Private
Placement, Creative Realities may not effect the exercise of any Common Stock Warrant or Pre-Funded Warrant, and a holder will not be
entitled to exercise any portion of any such warrant, for a number of warrant shares in excess of that number of warrant shares which,
upon giving effect to such exercise, would cause (i) the aggregate number of shares of Common Stock beneficially owned by the holder
(together with its affiliates) to exceed 19.99% of the total number of issued and outstanding shares of Common Stock following such exercise,
or (ii) the combined voting power of the securities of Creative Realities beneficially owned by the holder (together with its affiliates)
to exceed 19.99% of the combined voting power of all of the securities of Creative Realities then outstanding following such exercise
(the “Ownership Limitation”), in either case as such percentage ownership is determined in accordance with the terms of such
warrant, unless Creative Realities shareholder approval is obtained to exceed more than such 19.99% of the total number of issued and
outstanding shares of Common Stock following such exercise in accordance with the rules of The Nasdaq Stock Market. The approval of the
Share Issuance Proposal would permit the holders of the Pre-Funded Warrants and Common Stock Warrants to acquire shares of securities
of Creative Realities in excess of the Ownership Limitation.
Vote Required
The approval of the Share Issuance Proposal requires
the affirmative vote of a majority of the votes cast in person or by proxy and entitled to vote thereon at the Creative Realities Meeting
vote “FOR,” assuming that a quorum is present. Broker “non-votes” and abstentions will have no
effect with respect to the approval of this proposal.
Recommendation of the Board
THE
CREATIVE REALITIES BOARD UNANIMOUSLY RECOMMENDS THAT CREATIVE REALITIES SHAREHOLDERS VOTE “FOR” THE APPROVAL OF THE SHARE
ISSUANCE PROPOSAL.
Annex A
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
This
Amendment to Agreement and Plan of Merger (this “Amendment”) is entered into as of February 8, 2022, by
and among Reflect Systems, Inc., a Delaware corporation (the “Company”), Creative Realities, Inc., a Minnesota corporation
(“Parent”), CRI Acquisition Corporation, a Delaware corporation (“Merger Sub”), and RSI Exit Corporation,
a Texas corporation (“Stockholders’ Representative”).
RECITALS
A.
On November 12, 2021, the parties entered into that certain Agreement and Plan of Merger (the “Agreement”).
B.
The parties desire to amend the Agreement pursuant to Section 11.5 of the Agreement, upon the terms set forth herein.
NOW, THEREFORE, in
consideration of the mutual agreements specified in this Amendment, and for other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereby agree as follows:
1.
Definitions; Additional Terms. Capitalized terms used in this Amendment and not otherwise defined shall have the
respective meanings ascribed to such terms in the Agreement. The following definitions set forth in the Agreement are hereby amended to
read, in their entirety, as follows:
“Closing Date Merger
Consideration” means an amount equal to the Merger Consideration minus the Closing Date Escrow Amounts, minus the
Secured Promissory Note and minus the Guaranteed Consideration.”
“Closing Date Escrow
Amounts” means the Expenses Escrow Amount and the NWC Escrow Amount.”
“Escrow Amounts”
means the Expenses Escrow Amount, the NWC Escrow Amount and, after Closing and as deposited with the Escrow Agent by Parent pursuant to
Section 1.6(b)(ii), the Indemnity Escrow Amount.”
“Escrow Fund”
means the Escrow Amounts deposited with the escrow agent, as such sum may be increased or decreased as provided in the Escrow Agreement
and this Agreement, including payments by Parent under the Secured Promissory Note and any interest or other amounts earned on the Secured
Promissory Note or Escrow Fund.”
“Indemnity Escrow Amount”
means an amount in cash equal to $2,500,000, which amount is withheld ratably from the Stockholders at the Closing, and the amount thereof
is evidenced by the Secured Promissory Note. The amounts paid under the Secured Promissory Note to the Escrow Agent as the Indemnity Escrow
Amount shall be held by the Escrow Agent until release of the Indemnity Escrow Amount pursuant to the terms of the Escrow Agreement.”
The following term is hereby
added to the Agreement as a new definition:
“Secured Promissory
Note” means the Note and Security Agreement in the original principal amount of $2,500,000 issuable by Parent and the Company at
Closing to Seller Representative, as nominee for, and for the benefit of, the Stockholders, substantially in the form of the Secured Promissory
Note attached hereto as Exhibit G.”
2.
Extension of Outside Date. The definition of the “Outside Date” is hereby amended to read from January
31, 2022 to February 17, 2022. The reference to January 31, 2022 set forth in Section 1.14(a) of the Agreement is hereby amended to refer
to the Outside Date.
3.
Payment at the Effective Time. Section 1.6(b)(ii) of the Agreement is hereby amended to read, in its entirety, as
follows:
“At the Closing, Parent
shall pay (i) an amount equal to the NWC Escrow Amount to an account designated by the Escrow Agent and (ii) an amount equal to the Expenses
Escrow Amount to a different account designated by the Escrow Agent. The Escrow Amounts shall be held and distributed by the Escrow Agent
pursuant to the Escrow Agreement. All parties hereto agree for all Tax purposes that: (i) Parent shall be treated as the owner of the
Indemnity Escrow Amount and the NWC Escrow Amount, and all interest and earnings earned from the investment and reinvestment of the Indemnity
Escrow Amount and the NWC Escrow Amount, or any portion thereof, shall be allocable to Parent pursuant to Section 468B(g) of the
Code and Proposed Treasury Regulation Section 1.468B-8, (ii) if and to the extent any amount of the Indemnity Escrow Amount of the NWC
Escrow Amount is actually distributed to the Stockholders, interest may be imputed on such amount, as required by Section 483 or
1274 of the Code, (iii) the Stockholders’ right to the Indemnity Escrow Amount and NWC Escrow Amount and all interest and earnings
earned thereon under this Agreement shall be treated as installment obligations for purposes of Section 453 of the Code, and (iv) in no
event shall the aggregate payments with respect to the Indemnity Escrow Amount and NWC Escrow Amount under the Escrow Agreement to the
Stockholders exceed $2,750,000. Clause (iv) of the preceding sentence is intended to ensure that the right of the Stockholders to the
Indemnity Escrow Amount and NWC Escrow Amount and any interest and earnings earned thereon is not treated as a contingent payment without
a stated maximum selling price under Section 453 of the Code and the Treasury Regulations promulgated thereunder. No party hereto shall
take any action or filing position inconsistent with the foregoing.”
4.
Merger Consideration. Section 1.9 of the Agreement is hereby amended to read, in its entirety, as follows:
“Subject to the adjustments
set forth in this Section 1, including, but not limited to, the Merger Consideration Adjustment, the aggregate consideration for
the Shares (the “Merger Consideration”) shall be an amount equal to:
(a)
an aggregate amount in cash equal to $16,166,667 Dollars (the “Cash Consideration”);
plus
(b)
an aggregate amount of $2,500,000 evidenced by the Secured Promissory Note (the “Note Consideration”);
plus
(c)
2,333,334 shares of Parent common stock (the “Stock Consideration”) (based on
$4,666,667 of consideration divided by the Issuance Price); plus
(d)
the aggregate Guaranteed Consideration, if any, payable pursuant to Section 1.12; minus
(e)
the amount (if any) by which the Reference Working Capital exceeds the Estimated Working Capital;
plus
(f)
the amount (if any) by which the Estimated Working Capital exceeds the Reference Working Capital;
plus
(g)
the Estimated Cash; minus
(h)
the Estimated Indebtedness; minus
(i)
the Estimated Transaction Expenses.
At Closing, the Closing Date Escrow Amounts will
be transmitted to the Escrow Agent to be held by the Escrow Agent pursuant to the terms of the Escrow Agreement, and the Closing Date
Escrow Amounts shall reduce the Cash Consideration payable at the Closing.”
5.
Deliveries at Closing. Section 1.14(b)(i) is hereby amended to delete “and” after Section 1.14(b)(i)(11),
to replace the periods after Section 1.14(b)(i)(12) and Section 1.14(b)(i)(13) with semi-colons, and to add the following at the
end of Section 1.14(b)(i): “and (14) the Secured Promissory Note, duly executed by the Company and Stockholders’ Representative.”
Section 1.14(b)(ii) is hereby
amended to delete “and” after Section 1.14(b)(ii)(d), to replace the period after Section 1.14(b)(ii)(e), with the following
at the end of Section 1.14(b)(ii)(e): “and (f) the Secured Promissory Note, duly executed by Parent.”
6.
Note Offset Rights.
Section 9.4(a) is deleted in
its entirety and replaced as follows:
“Stockholders shall
not be liable for Losses for any Warranty Breach unless the aggregate amount of all Losses with respect to all Warranty Breaches exceeds
$200,000, and then only to the extent of such excess (the “Deductible”); provided, that the Deductible shall not apply
to any Warranty Breaches of any Fundamental Representation. Stockholders’ aggregate indemnification obligations pursuant to this
Article IX shall not exceed at any time the sum of (i) all amounts outstanding under the Secured Promissory Note, plus (ii) all
amounts remaining in the Escrow Fund, which shall be the Parent Indemnified Parties’ sole and exclusive source for indemnification
pursuant to this Article IX; provided that notwithstanding the foregoing, Warranty Breaches of the Fundamental Representations shall be
capped at the Merger Consideration. For the avoidance of doubt, Parent Indemnified Parties must first seek recourse to the Escrow Fund
and offset of the Secured Promissory Note to the extent permitted thereby, for any recovery related to claims under this Article IX.”
Section 9.11 is hereby added
to the Agreement as follows:
“Parent shall have the
right to offset amounts payable under the Secured Promissory Note upon the terms set forth in the Secured Promissory Note.”
7.
Exhibits. Exhibit E to the Agreement, the “Escrow Agreement,” is hereby amended to refer to Exhibit E
attached hereto. Exhibit G attached hereto is hereby added as Exhibit G to the Agreement.
8.
Succession and Assignment; No Third-Party Beneficiary. Section 11.4 is deleted in its entirety and replaced as follows:
“Subject to the immediately
following sentence, this Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors
and permitted assigns, each of which successors and permitted assigns will be deemed to be a party hereto for all purposes hereof. No
party may assign, delegate or otherwise transfer either this Agreement or any of its rights, interests, or obligations hereunder without
the prior written approval of the other parties; provided that Parent and Merger Sub may (i) assign this Agreement (in
whole but not in part) to one or more Affiliates of Parent, and (ii) assign their rights under this Agreement as collateral security to
any lender to Parent or Affiliate of Parent; and, provided, further, that no such assignment shall relieve Parent
or Merger Sub of their respective obligations under this Agreement. Except as expressly set forth in Article IX with
respect to Indemnified Persons who are not parties to this Agreement, this Agreement is for the sole benefit of the parties and their
respective successors and permitted assignees and nothing herein expressed or implied will give or be construed to give any Person, other
than the parties and such successors and assignees, any legal or equitable rights hereunder.”
9.
Power and Authorization. The first sentence of Section 2.4 is hereby amended to read, in its entirety, as follows:
“The Company has all requisite power and authority to execute and deliver this Agreement and, to the extent it is a party thereto,
each other agreement, document, instrument or certificate contemplated by this Agreement, or to otherwise be executed by it, or any of
them, in connection with the consummation of the Contemplated Transactions (including the Letter of Transmittal, Secured Promissory Note
and the Escrow Agreement) (the “Transaction Agreements”), and to consummate the Contemplated Transactions.”
10.
Stockholder Representative Authority. Section 11.2(b)(vi) is hereby amended to read, in its entirety, as follows:
“(vi) give any and all consents and notices under this Agreement any of the Transaction Agreements (including with respect to payments
under the Escrow Agreement and Secured Promissory Note), perform all actions, exercise all powers, receive service of process with respect
to any Action under this Agreement, the Transaction Agreements and any other agreement or instrument in connection with the Contemplated
Transactions,”. Section 11.2(b) is hereby amended to delete “and” after Section 11.2(b)(vi), to replace the period after
11.2(b)(vii) with the following at the end of Section 11.2(b)(vii): “and (viii) act as the agent for the Stockholders under the
Secured Promissory Note, to hold and take any and all actions with respect to the Collateral (as defined in the Secured Promissory Note)
and to exercise, or refrain from exercising, all remedies thereunder as permitted by the Secured Promissory Note and applicable Law, and
to enter into any and all agreements deemed necessary, appropriate or advisable by the Stockholders’ Representative in connection
therewith, in each case in the sole and absolute discretion of the Stockholders’ Representative.”
11.
Reimbursement of Expenses. Parent will reimburse the Company up to $20,000 of legal Transaction Expenses associated
with or relating to adjourning and reconvening the Company Stockholders’ Meeting, the drafting, negotiation and execution of this
Amendment and the Secured Promissory Note, and other amendments to the Transaction Agreements, dealings and negotiations with Parent’s
lenders, additional Company Board calls, meetings and consents, additional SEC filings, and additional communications with Stockholders
and associated work with Company officers and advisors.
12.
Representations and Warranties. Each of the parties represents and warrants that (a) it has all requisite power and
authority to execute and deliver this Amendment, (b) the execution and delivery by such party of this Amendment has been duly and properly
authorized, and (c) this Amendment constitutes the legal, valid and binding obligations of such party, Enforceable against such party
in accordance with its terms, except as limited by the Enforceability Exceptions.
13.
No Other Modification. Except as expressly set forth herein, the Agreement shall remain in full force and effect
and shall not be modified except as set forth in this Amendment.
14.
Governing Law. This Amendment, the rights of the parties and all Actions arising in whole or in part under or in
connection herewith, will be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to
any choice or conflict of law provision or rule of the State of Delaware or of any other jurisdiction that would cause the application
of the laws of any other jurisdiction other than Delaware.
15.
Counterparts; Execution. This Amendment may be executed in any number of counterparts, each of which will be deemed
an original, but all of which together will constitute but one and the same instrument. This Amendment will become effective when duly
executed by each party hereto. Facsimile or other electronically scanned and transmitted signatures, including by email attachment, shall
be deemed originals and shall constitute valid execution and acceptance of this Agreement by the signing/transmitting party.
Signature Page follows
IN WITNESS WHEREOF,
each of the undersigned has executed and delivered this Amendment to Agreement and Plan of Merger as of the date first set forth above.
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COMPANY:
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Reflect Systems, Inc.
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By:
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/s/ Lee Summers
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Name:
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Lee Summers
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Title:
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Chief Executive Officer
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Signature Page—
Amendment to Agreement and Plan of Merger
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PARENT:
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Creative Realities, Inc.
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By:
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/s/ Rick Mills
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Name:
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Rick Mills
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Title:
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Chief Executive Officer
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MERGER SUB:
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CRI Acquisition Corporation
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By:
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/s/ Rick Mills
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Name:
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Rick Mills
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Title:
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Chief Executive Officer
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Signature Page—
Amendment to Agreement and Plan of Merger
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STOCKHOLDERS’ REPRESENTATIVE:
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RSI Exit Corporation
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By:
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/s/ William Warren
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Name:
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William Warren
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Title:
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President
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Signature Page—
Amendment to Agreement and Plan of Merger
Exhibit E
Form of Escrow Agreement
ESCROW AGREEMENT
This ESCROW AGREEMENT (this
“Agreement”) is made and entered into as of February ___, 2022, by and among RSI Exit Corporation, a Texas corporation
(“Stockholders’ Representative”), Creative Realities, Inc., a Minnesota corporation (“Parent”,
and together with Stockholders’ Representative, sometimes referred to individually as “Party” or collectively
as the “Parties”), and Computershare Trust Company, N.A. (the “Escrow Agent”). Capitalized terms
used but not defined in this Agreement shall have the meanings set forth in the Merger Agreement (as defined below).
WHEREAS,
the Parties, CRI Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”),
and Reflect Systems, Inc., a Delaware corporation (the “Company”), are parties to that certain Agreement and Plan of
Merger, dated as of November 12, 2021 (as amended, the “Merger Agreement”), pursuant to which, among other things,
on the date hereof, Parent, Merger Sub and the Company intend to effect a merger of Merger Sub with and into the Company in accordance
with, and subject to, the terms and conditions of the Merger Agreement, the Certificate of Merger and the DGCL (the “Merger”),
and upon consummation of the Merger, Merger Sub will cease to exist, and the Company will become a wholly owned subsidiary of Parent.
Capitalized terms used in this Agreement shall have the meanings set forth in the Merger Agreement unless otherwise defined herein.
WHEREAS, the Parties
have agreed to deposit in escrow certain funds and wish such deposit to be subject to the terms and conditions set forth herein.
WHEREAS, the Parties
acknowledge that the Escrow Agent is not a party to, is not bound by, and has no duties or obligations under, the Merger Agreement, that
all references in this Agreement to the Merger Agreement are for convenience, and that the Escrow Agent shall have no implied duties beyond
the express duties set forth in this Agreement.
WHEREAS, pursuant to
Section 11.2 of the Merger Agreement, each of the Stockholders have irrevocably constituted and appointed the Stockholders’ Representative
as such Stockholders’ attorney-in-fact and agent to act in such Stockholder’s name, place and stead in connection with all
matters arising from and under this Agreement, and all actions taken by the Stockholders’ Representative under this Agreement will
be binding upon each Stockholder as if expressly authorized, ratified and confirmed in writing by each of them.
NOW
THEREFORE, in consideration of the promises and agreements of the Parties and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Parties and the Escrow Agent agree as follows:
1. Appointment.
The Parties hereby appoint the Escrow Agent as their escrow agent for the purposes set forth herein, and the Escrow Agent hereby accepts
such appointment under the terms and conditions set forth herein.
2. Fund.
On the Closing Date, the Parent agrees to deposit with the Escrow Agent: (a) the sum of $250,000 (the “Expenses Escrow Amount”)
in immediately available funds, and (b) the sum of $250,000 (the “NWC Escrow Amount”) in immediately available funds.
In addition, Parent shall deposit with the Escrow Agent from time to timethe sum of up to $2,500,000 (the “Indemnity Escrow Amount”
and together with the Expenses Escrow Amount and the NWC Escrow Amount, the “Escrow Deposits”) in immediately available
funds in installments prior to the Escrow Termination Date (as defined below), payable upon those terms and subject to those conditions
set forth in the Secured Promissory Note. The Escrow Agent shall hold the Escrow Deposits and, subject to the terms and conditions hereof,
shall invest and reinvest each of the Escrow Deposits and the applicable proceeds thereof (the “Expenses Escrow Fund”,
the “NWC Escrow Fund” and the “Indemnity Escrow Fund”, respectively, and collectively, the “Funds”)
as directed in Section 3. Parent shall provide advanced notice to the Escrow Agent and Stockholders’ Representative prior
to making a deposit into the Indemnity Escrow Fund. Subject to Parent providing such notice to the Escrow Agent, the Escrow Agent shall
notify the Stockholders’ Representative of the amount of each desposit made into the Indemnity Escrow Fund within two (2) Business
Days of such deposit.
3. Investment
of Fund. (a) The Escrow Agent offers the custody of funds placed, at the direction of the Parties, in bank account deposits. The Escrow
Agent will not provide any investment advice in connection with this service. During the term of this Agreement, the Funds shall be held
in three (3) separate accounts – one bank account for the Funds related to the Expenses Escrow Amount, a second bank account for
the Funds related to the NWC Escrow Amount and a third bank account for the Funds related to the Indemnity Escrow Amount – each
of which shall be deposited in one or more interest-bearing accounts to be maintained by the Escrow Agent in the name of the Escrow Agent
at one or more of the banks listed in Schedule 3 to this Agreement, each of which shall be a commercial bank with capital exceeding
$500,000,000 (each such bank an “Approved Bank”). The deposit of each of the Escrow Deposits in any of the Approved
Banks shall be deemed to be at the direction of the Parties. At any time and from time to time, the Parties may direct Escrow Agent by
written notice (i) to deposit all or any of the Escrow Deposits with a specific Approved Bank, (ii) not to deposit any new amounts in
any Approved Bank specified in the notice and/or (iii) to withdraw all or any of the Escrow Deposits that may then be deposited with any
Approved Bank specified in the notice. With respect to any withdrawal notice, the Escrow Agent will endeavor to withdraw such amount specified
in the notice as soon as reasonably practicable and the Parties acknowledge and agree that such specified amount remains at the sole risk
of the Parties prior to and after such withdrawal, absent the gross negligence, bad faith or wiful misconduct of the Escrow Agent as set
forth in Section 5(b). Such withdrawn amounts shall be deposited with any other Approved Bank or any Approved Bank specified by
the Parties in the notice.
(b) The Escrow Agent shall pay interest on each
of the Funds at a rate equal to the then current Federal Funds target minus fifty (50) basis points. Such interest shall accrue to the
Fund within three (3) Business Days of each month end. Escrow Agent shall be entitled to retain for its own benefit, as partial compensation
or benefit for its services hereunder, including reduced bank charges, any amount of interest earned on the Escrow Deposit that is not
payable pursuant to this Section 3(b) or herein.
(c) The Funds in custody by the Escrow Agent pursuant
to this Agreement are at the sole risk of the Parties and, without limiting the generality of the foregoing, the Escrow Agent shall have
no responsibility or liability for any diminution of any of the Escrow Deposits which may result from any deposits made pursuant to this
Agreement, including any losses resulting from a default by an Approved Bank or any other credit losses (whether or not resulting from
such default) or other losses on any deposit required to be liquidated in order to make a payment required hereunder, in each case except
for the gross negligence, bad faith or wiful misconduct of the Escrow Agent as set forth in Section 5(b). The Parties acknowledge
and agree that the Escrow Agent is acting prudently and at their direction when depositing each of the Escrow Deposits at any Approved
Bank, and the Escrow Agent is not required to make any further inquiries in respect of any Approved Bank.
4. Disposition and Termination. (a) Amounts
in the Expenses Escrow Fund shall be released to the Stockholders’ Representative in accordance with the terms and conditions of
the Merger Agreement at such times and to such persons or entities as are designated from time to time by the Stockholders’ Representative
in writing to the Escrow Agent.
(b) Within three (3) Business Days after the final
determination of the Merger Consideration Adjustment in accordance with the Merger Agreement, the Parent and the Stockholders’ Representative
shall submit a joint written instruction to the Escrow Agent with respect to the NWC Escrow Fund, and the Escrow Agent shall promptly,
but in any event within three (3) Business Days after the joint written instruction is received by the Escrow Agent, disburse the NWC
Escrow Fund in accordance with such joint written instruction.
(c) As soon as practicable (but no later than
three (3) Business Days) after the date that twelve (12) months following the date of this Agreement (the “Escrow Termination
Date”), the Escrow Agent shall release to the Stockholders’ Representative all remaining amounts of the Indemnity Escrow
Fund less any Reserved Portion (as defined herein) as provided in a joint written instruction to the Escrow Agent from the Parties.
Any Reserved Portion shall continue to be held in escrow under this Agreement by the Escrow Agent until the claims contained in any Claim
Notice(s) described in Section 4(d) below become resolved, even if such claims have not been finally resolved prior to the Escrow
Termination Date. After the Escrow Termination Date, the Escrow Agent shall only release all or any amount of the Reserved Portion to
Parent or Stockholders’ Represenative from the Indemnity Escrow Fund pursuant to a written instruction delivered in accordance with
Section 4(h) hereof.
(d) Notwithstanding anything in this Agreement
to the contrary, if on or before the Escrow Termination Date, the Escrow Agent has received from the Parent a notice (a “Claim
Notice”) specifying in reasonable detail the nature and basis for a claim for indemnification or deman for payment pursuant
to the Merger Agreement and the amount of the claim, or if such amount is unknown, Parent’s good faith reasonable estimate of the
amount of such claim (the “Claimed Amount”), then the Escrow Agent shall continue to keep in escrow an amount equal
to the Claimed Amount set forth in such Claim Notice(s) of the Indemnity Escrow Fund (the “Reserved Portion”) until
such Claimed Amount is resolved as provided herein. For the avoidance of doubt, the preceding sentence shall survive the Escrow Termination
Date. In any Claim Notice, Parent shall, in reasonable detail to the extent possible, cite the nature of the claim, the section(s) of
the Merger Agreement supporting its claim, and facts and circumstances supporting its claim.
(e) At the time of delivery of any Claim Notice
to the Escrow Agent, a duplicate copy of such Claim Notice shall be delivered by the Parent to the Stockholders’ Representative
in accordance with the notice provisions contained in the Merger Agreement.
(f) Unless the Stockholders’ Representative
delivers to the Escrow Agent a notice objecting in good faith to the creation of the Reserved Portion (or any amount thereof), or the
claim contained in the Claim Notice (the “Contest Notice”) within thirty (30) calendar days of the Stockholders’
Representative receiving the relevant Claim Notice pursuant to Section 4(e) hereof, the Escrow Agent shall, without further instructions,
promptly liquidate that portion of the Indemnity Escrow Fund equal to the Claimed Amount as set forth in such Claim Notice and deliver
such amount to the Parent. The Escrow Agent shall continue to hold in escrow any contested Claimed Amount until release is otherwise authorized
pursuant to Section 4(g) hereof. If any Contest Notice includes an objection to only a portion of a Claimed Amount, the Escrow
Agent shall promptly release to the Purcahse an amount from the Indemnity Escrow Fund equal to the portion of the Claimed Amount in relation
to which there is no objection.
(g) In the event that the Stockholders’
Representative shall deliver a Contest Notice in accordance with Section 4(f) hereof, the Stockholders’ Representative and
the Parent shall resolve such dispute in accordance with the terms of the Merger Agreement. The Escrow Agent shall make payment with respect
to any Claimed Amount subject to such Contest Notice only in accordance with: (i) any joint written instructions executed by both the
Stockholders’ Representative and the Parent; or (ii) a joint written notification from the Parent and the Stockholders’ Representative
of a final decision, order, judgment or decree of a court of competent jurisdiction or an arbitrator, which notification shall attach
a copy of such final decision, order, judgment or decree (a “Final Order”). The Escrow Agent shall be entitled to rely
on any such joint written instructions or Final Order and upon receipt thereof shall promptly liquidate and distribute that portion of
the remaining the Indemnity Escrow Fund as instructed in such joint written instructions or Final Order.
(h) Notwithstanding anything to the contrary in
this Agreement, if the Escrow Agent receives joint written instructions from the Stockholders’ Representative and the Parent, or
their respective successors or assigns, as to the disbursement of all or any part of the NWC Escrow Fund or the Indemnity Escrow Fund,
the Escrow Agent shall disburse the applicable amount of the NWC Escrow Fund or the Indemnity Escrow Fund, as applicable, pursuant to
such joint written instructions. The Escrow Agent shall have no obligation to follow any directions set forth in any joint written instructions
unless and until the Escrow Agent is satisfied, in its sole discretion, that the persons executing said joint written instructions are
authorized to do so.
(i) Notwithstanding anything to the contrary in
this Agreement, if any amount to be released at any time or under any circumstances exceeds the balance in the applicable Fund, the Escrow
Agent shall release the balance in the respective Fund and shall have no liability or responsibility to the Parties for any deficiency,
absent the gross negligence, bad faith or wiful misconduct of the Escrow Agent as set forth in Section 5(b).
(j) Upon delivery of any and all remaining balances
in the Funds by the Escrow Agent, this Agreement shall terminate, subject to the provisions of Section 8.
5. Escrow
Agent. (a) The Escrow Agent shall have only those duties as are specifically and expressly provided herein, which shall be deemed
purely ministerial in nature, and no other duties shall be implied. The Escrow Agent shall neither be responsible for, nor chargeable
with, knowledge of, nor have any requirements to comply with, the terms and conditions of any other agreement, instrument or document
between the Parties, in connection herewith, if any, including without limitation the Merger Agreement, nor shall the Escrow Agent be
required to determine if any person or entity has complied with any such agreements, nor shall any additional obligations of the Escrow
Agent be inferred from the terms of such agreements, even though reference thereto may be made in this Agreement. In the event of any
conflict between the terms and provisions of this Agreement, those of the Merger Agreement, any schedule
or exhibit attached to this Agreement, or any other agreement among the Parties, the terms and conditions of this Agreement shall
control. The Escrow Agent may rely upon and shall not be liable for acting or refraining from acting upon any written notice, document,
instruction or request furnished to it hereunder and believed by it to be genuine and to have been signed or presented by the proper Party
or Parties without inquiry and without requiring substantiating evidence of any kind. The Escrow Agent shall not be liable to any Party,
any beneficiary or other person for refraining from acting upon any instruction setting forth, claiming, containing, objecting to, or
related to the transfer or distribution of any of the Funds, or any portion thereof, unless such instruction shall have been delivered
to the Escrow Agent in accordance with Section 11 below and the Escrow Agent has been able to satisfy any applicable security procedures
as may be required hereunder and as set forth in Section 11. The Escrow Agent shall be under no duty to inquire into or investigate
the validity, accuracy or content of any such document, notice, instruction or request. The Escrow Agent shall have no duty to solicit
any payments which may be due it or the Funds, including, without limitation, the Escrow Deposits nor shall the Escrow Agent have any
duty or obligation to confirm or verify the accuracy or correctness of any amounts deposited with it hereunder.
(b) The Escrow Agent shall not
be liable for any action taken, suffered or omitted to be taken by it except to the extent that a final adjudication of a court of competent
jurisdiction determines that the Escrow Agent’s gross negligence, bad faith or willful misconduct was the primary cause of any loss to
either Party. The Escrow Agent may execute any of its powers and perform any of its duties hereunder directly or through affiliates or
agents. The Escrow Agent may consult with counsel, accountants and other skilled persons to be selected and retained by it. The Escrow
Agent shall not be liable for any action taken, suffered or omitted to be taken by it in accordance with, or in reliance upon, the advice
or opinion of any such counsel, accountants or other skilled persons. In the event that the Escrow Agent shall be uncertain or believe
there is some ambiguity as to its duties or rights hereunder or shall receive instructions, claims or demands from any Party hereto which,
in its opinion, conflict with any of the provisions of this Agreement, it shall be entitled to refrain from taking any action and its
sole obligation shall be to keep safely all property held in escrow until it shall be given a direction in writing by the Parties which
eliminates such ambiguity or uncertainty to the satisfaction of Escrow Agent or by a final and non-appealable order or judgment of a court
of competent jurisdiction. The Parties agree to pursue any redress or recourse in connection with any dispute without making the Escrow
Agent a party to the same. Anything in this Agreement to the contrary notwithstanding, in no event shall the Escrow Agent be liable for
special, incidental, punitive, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits),
even if the Escrow Agent has been advised of the likelihood of such loss or damage and regardless of the form of action.
6. Succession. (a) The
Escrow Agent may resign and be discharged from its duties or obligations hereunder by giving thirty (30) days advance notice in writing
of such resignation to the Parties specifying a date when such resignation shall take effect. If the Parties have failed to appoint a
successor escrow agent prior to the expiration of thirty (30) days following receipt of the notice of resignation, the Escrow Agent may
petition any court of competent jurisdiction for the appointment of a successor escrow agent or for other appropriate relief, and any
such resulting appointment shall be binding upon all of the Parties hereto. The Escrow Agent’s sole responsibility after such thirty
(30) day notice period expires shall be to hold the Funds (without any obligation to reinvest the same) and to deliver the same to a designated
substitute escrow agent, if any, or in accordance with the directions of a final order or judgment of a court of competent jurisdiction,
at which time of delivery Escrow Agent’s obligations hereunder shall cease and terminate, subject to the provisions of Section
8 hereunder. In accordance with Section 8 below, the Escrow Agent shall have the right to withhold an amount equal to any amount
due and owing to the Escrow Agent, plus any costs and expenses the Escrow Agent shall reasonably believe may be incurred by the Escrow
Agent in connection with the termination of the Agreement.
(b) Any
entity into which the Escrow Agent may be merged or converted or with which it may be consolidated, or any entity to which all or substantially
all the escrow business may be transferred, shall be the Escrow Agent under this Agreement without further act.
7. Compensation
and Reimbursement. The Parties each agree to (a) pay the Escrow Agent upon execution of this Agreement and from time to time thereafter
one-half of all reasonable compensation for the services to be rendered hereunder as described in Schedule 2 attached hereto, and
(b) pay or reimburse one-half of the Escrow Agent upon request for all expenses, disbursements and advances, including, without limitation
reasonable attorney’s fees and expenses, incurred or made by it in connection with the entry into, performance, modification and termination
of this Agreement.
8. Indemnity.
(a) Subject to Section 8(c) below, Escrow Agent shall be liable for any losses, damages, claims, liabilities, penalties, judgments,
settlements, actions, suits, proceedings, litigations, investigations, costs or expenses (including without limitation, the fees and expenses
of outside counsel and experts and their staffs and all expenses of document location, duplication and shipment) (collectively “Losses”)
only to the extent such Losses are determined by a court of competent jurisdiction to be a result of Escrow Agent’s gross negligence,
bad faith or willful misconduct; provided, however, that any liability of the Escrow Agent will be limited in the aggregate to the Escrow
Deposit placed with the Escrow Agent.
(b)
The Parties shall jointly and severally indemnify and hold Escrow Agent harmless from and against, and Escrow Agent shall not be responsible
for, any and all Losses arising out of or attributable to Escrow Agent’s duties under this Agreement or this appointment,
including the reasonable costs and expenses of defending itself against any Losses or enforcing this Agreement, except to the extent of
liability of the Escrow Agent described in Section 8(a) above.
(c) Without limiting the Parties’ indemnification
obligations set forth in Section 8(b), neither the Parties nor the Escrow Agent shall be liable for any incidental, indirect, special
or consequential damages of any nature whatsoever, including, but not limited to, loss of anticipated profits, occasioned by a breach
of any provision of this Agreement even if apprised of the possibility of such damages. The foregong shall not affect the Parties’
or Stockholders’ rights and obligations set forth in the Merger Agreement.
(d) This Section 8 shall survive termination
of this Agreement or the resignation, replacement or removal of the Escrow Agent for any reason.
9. Patriot
Act Disclosure/Taxpayer Identification Numbers/Tax Reporting.
(a) Patriot Act Disclosure. Section 326
of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA
PATRIOT Act”) requires the Escrow Agent to implement reasonable procedures to verify the identity of any person that opens a
new account with it. Accordingly, the Parties acknowledge that Section 326 of the USA PATRIOT Act and the Escrow Agent’s identity
verification procedures require the Escrow Agent to obtain information which may be used to confirm the Parties identity including without
limitation name, address and organizational documents (“identifying information”). The Parties agree to provide the
Escrow Agent with and consent to the Escrow Agent obtaining from third parties any such identifying information required as a condition
of opening an account with or using any service provided by the Escrow Agent.
(b) Certification and Tax Reporting. The
Parties have provided the Escrow Agent with their respective fully executed Internal Revenue Service (“IRS”) Form W-8,
or W-9 and/or other required documentation. All interest or other income earned from the NWC Escrow Amount and the Indemnity Escrow Amount
under this Agreement shall be allocated to the Parent pursuant to Section 468B(g) of the Code and Proposed Treasury Regulation Section
1.468B-8 and reported, as and to the extent required by law, by the Escrow Agent to the IRS, or any other taxing authority, on IRS Form
1099 or 1042S (or other appropriate form) as income earned from the NWC Escrow Amount and the Indemnity Escrow Amount by the Parent whether
or not said income has been distributed during such year. Solely between the Parties, (i) upon any release and distribution of any of
the NWC Escrow Funds or the Indemnity Escrow Funds to the Stockholders, interest may be imputed on such released amounts, as required
by Section 483 of the Internal Revenue Code of 1986, as amended (the “Code”), or Section 1274 of the Code, (ii) the
Stockholders’ right to the NWC Escrow Fund and the Indemnity Escrow Fund under this Agreement shall be treated as installment obligations
for purposes of Section 453 of the Code, and (iii) in no event shall the aggregate payments with respect to the NWC Escrow Fund and the
Indemnity Escrow Fund under this Agreement to the Stockholders exceed $2,750,000. Clause (iii) of the preceding sentence is intended to
ensure that the right of the Stockholders to the NWC Escrow Fund and the Indemnity Escrow Fund is not treated as a contingent payment
without a stated maximum selling price under Section 453 of the Code and the Treasury Regulations promulgated thereunder. No party hereto
shall take any action or filing position inconsistent with the foregoing.
(c) The Escrow Agent shall withhold any taxes
it deems appropriate in the absence of proper tax documentation or as required by law, and shall remit such taxes to the appropriate authorities.
The Parties hereby represent and warrant to the Escrow Agent that (i) there is no sale or transfer of an United States Real Property Interest
as defined under IRC Section 897(c) in the underlying transaction giving rise to this Agreement; and (ii) such underlying transaction
does not constitute an installment sale requiring any tax reporting or withholding of imputed interest or original issue discount to the
IRS or other taxing authority.
10. Notices.
All communications hereunder shall be in writing and except for communications from the Parties setting forth, claiming, containing, objecting
to, or in any way related to the transfer or distribution of funds, including but not limited to funds transfer instructions (all of which
shall be specifically governed by Section 11 below), shall be deemed to be duly given after it has been received and the receiving
party has had a reasonable time to act upon such communication if it is sent or served: (a) by facsimile; (b) by overnight courier; or
(c) by prepaid registered mail, return receipt requested;to the appropriate notice address set forth below or at such other address as
any party hereto may have furnished to the other parties in writing by registered mail, return receipt requested.
If to Stockholers’
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Representative:
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RSI Exit Corporation
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1413 Teaberry Court
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Plano, TX 75093
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Attention: William Warren
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Facsimile No. (972) 741-0594
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With a copy to:
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Katten Muchin Rosenman LLC
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2121 N. Pearl Street, Suite 1100
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Dallas, TX 75201-2494
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Attention: Joseph A. Hoffman, Esq.
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Facsimile: (214) 765-3602
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If to Parent:
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13100 Magisterial Drive, Ste 100
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Louisville, KY 40223
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Attention: CFO
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Facsimile No. (502) 791-8797
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With a copy to:
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Maslon LLP
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3300 Wells Fargo Center
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90 South Seventh Street
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Minneapolis, MN 55402-4140
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Attention: Bradley A. Pederson
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Facsimile: (612) 642-8341
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If to the Escrow Agent:
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Computershare Trust Company, N.A.
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6200 S. Quebec St.
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Greenwood Village, CO 80111
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Attention: Rose Stroud and/or Jay Ramos
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Facsimile No. (303) 262-0608
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Email: corporate.trust@computershare.com and
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rose.stroud@computershare.com; jay.ramos@computershare.com
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With a copy to:
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Computershare Trust Company, N.A.
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480 Washington Boulevard
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Jersey City, NJ 07310
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Attention: General Counsel
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Facsimile No.: (201) 680-4610
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Notwithstanding the above, in the case of communications
delivered to the Escrow Agent, such communications shall be deemed to have been given on the date received by an officer of the Escrow
Agent or any employee of the Escrow Agent who reports directly to any such officer at the above-referenced office. In the event that the
Escrow Agent, in its sole discretion, shall determine that an emergency exists, the Escrow Agent may use such other means of communication
as the Escrow Agent deems appropriate. For purposes of this Agreement, “Business Day” shall mean any day other than
a Saturday, Sunday or any other day on which the Escrow Agent located at the notice address set forth above is authorized or required
by law or executive order to remain closed.
11. Security Procedures. (a) Notwithstanding
anything to the contrary as set forth in Section 10, any instructions setting forth, claiming, containing, objecting to, or in
any way related to the transfer or distribution of funds, including but not limited to any such funds transfer instructions that may otherwise
be set forth in a written instruction permitted pursuant to Section 4 of this Agreement, may be given to the Escrow Agent only
by confirmed facsimile or email attachment and no instruction for or related to the transfer or distribution of the applicable Fund, or
any portion thereof, shall be deemed delivered and effective unless the Escrow Agent actually shall have received such instruction by
facsimile or email at the number or email address provided to the Parties by the Escrow Agent in accordance with Section 10 and
as further evidenced by a confirmed transmittal to that number.
(b) In the event funds transfer instructions are
so received by the Escrow Agent by facsimile or email, the Escrow Agent is authorized to seek confirmation of such instructions by telephone
call-back to the person or persons designated on Schedule 1 hereto, and the Escrow Agent may rely upon the confirmation of anyone
purporting to be the person or persons so designated. The persons and telephone numbers for call-backs may be changed only in a writing
actually received and acknowledged by the Escrow Agent. If the Escrow Agent is unable to contact any of the authorized representatives
identified in Schedule 1, the Escrow Agent is hereby authorized both to receive written instructions from and seek confirmation
of such instructions by telephone call-back to any one or more of Stockholders’ Representative’s or Parent’s executive
officers, (“Executive Officers”), as the case may be, which shall include the titles of President, Chief Executive
Officer, Controller, General Counsel and Chief Financial Officer, as the Escrow Agent may select. Such Executive Officer shall deliver
to the Escrow Agent a fully executed incumbency certificate, and the Escrow Agent may rely upon the confirmation of anyone purporting
to be any such officer. The Escrow Agent and the beneficiary’s bank in any funds transfer may rely solely upon any account numbers
or similar identifying numbers provided by Stockholders’ Representative or Parent to identify (i) the beneficiary, (ii) the beneficiary’s
bank, or (iii) an intermediary bank. The Escrow Agent may apply any of the escrowed funds for any payment order it executes using any
such identifying number, even when its use may result in a person other than the beneficiary being paid, or the transfer of funds to a
bank other than the beneficiary’s bank or an intermediary bank designated.
(c) The Parties acknowledge that the security procedures set forth
in this Section 11 are commercially reasonable.
12. Compliance
with Court Orders. In the event that any escrow property shall be attached, garnished or levied upon by any court order, or the delivery
thereof shall be stayed or enjoined by an order of a court, or any order, judgment or decree shall be made or entered by any court order
affecting the property deposited under this Agreement, the Escrow Agent is hereby expressly authorized, in its sole discretion, to obey
and comply with all writs, orders or decrees so entered or issued, which it is advised by legal counsel of its own choosing is binding
upon it, whether with or without jurisdiction, and in the event that the Escrow Agent obeys or complies with any such writ, order or decree
it shall not be liable to any of the parties hereto or to any other person, entity, firm or corporation, by reason of such compliance
notwithstanding such writ, order or decree be subsequently reversed, modified, annulled, set aside or vacated.
13. Miscellaneous.
Except for funds transfer instructions as provided in Section 11, the provisions of this Agreement may be waived, altered,
amended or supplemented, in whole or in part, only by a writing signed by the Escrow Agent and both of the Parties. Neither this Agreement
nor any right or interest hereunder may be assigned in whole or in part by the Escrow Agent or any Party, except as provided in Section
6, without the prior consent of the Escrow Agent and each of the other Parties. This Agreement shall be governed by and construed
under the laws of the State of New York. Each Party and the Escrow Agent irrevocably waives any objection on the grounds of venue, forum
non-conveniens or any similar grounds and irrevocably consents to service of process by mail or in any other manner permitted by applicable
law and consents to the jurisdiction of any court of the State of New York or United States federal court, in each case, sitting in New
York County, New York. The Parties and the Escrow Agent further hereby waive any right to a trial by jury with respect to any lawsuit
or judicial proceeding arising or relating to this Agreement. No party to this Agreement is liable to any other party for losses due to,
or if it is unable to perform its obligations under the terms of this Agreement because of, acts of God, fire, war, terrorism, floods,
strikes, electrical outages, equipment or transmission failure, or other causes reasonably beyond its control. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
All signatures of the parties to this Agreement may be transmitted by facsimile or email PDF and such facsimile or email PDF will, for
all purposes, be deemed to be the original signature of such party whose signature it reproduces, and will be binding upon such party.
If any provision of this Agreement is determined to be prohibited or unenforceable by reason of any applicable law of a jurisdiction,
then such provision shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating
the remaining provisions thereof, and any such prohibition or unenforceability in such jurisdiction shall not invalidate or render unenforceable
such provisions in any other jurisdiction. A person or entity who is not a party to this Agreement shall have no right to enforce any
term of this Agreement. The Parties represent, warrant and covenant that each document, notice, instruction or request provided by such
Party to Escrow Agent shall comply with applicable laws and regulations. Where, however, the conflicting provisions of any such applicable
law may be waived, they are hereby irrevocably waived by the parties hereto to the fullest extent permitted by law, to the end that this
Agreement shall be enforced as written. Except as expressly provided in Section 8 above, nothing in this Agreement, whether express
or implied, shall be construed to give to any person or entity other than the Escrow Agent and the Parties any legal or equitable right,
remedy, interest or claim under or in respect of this Agreement or any funds escrowed hereunder.
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement as of the date set forth above.
STOCKHOLDERS’ REPRSENTATIVE:
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RSI EXIT CORPORATION
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By:
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Name:
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William E. Warren
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Title:
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President
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Telephone:
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(972) 741-0594
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PARENT:
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CREATIVE REALITIES, INC.
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By:
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Name:
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Will Logan
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Title:
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Chief Financial Officer
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Telephone:
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(502) 791-8797
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ESCROW AGENT:
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COMPUTERSHARE TRUST COMPANY, N.A.
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By:
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Name:
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Jaddiel Ramos
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Title:
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Corporate Trust Officer
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[Signature Page to Escrow Agreement]
Exhibit G
Form of Secured Promissory Note
NOTE AND SECURITY AGREEMENT
(Escrow/Holdback Amounts)
$2,500,000.00
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February [15], 2022
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FOR VALUE RECEIVED, the receipt
of which is hereby acknowledged Creative Realities, Inc., a Minnesota corporation
(“CRI”), and Reflect Systems, Inc., a Delaware corporation (“RSI” and together with CRI,
each a “Borrower” and collectively, the “Borrowers”), hereby, jointly and severally, promise
to pay to the order of RSI Exit Corporation, a Texas corporation, in its capacity
as the representative of the Stockholders (the “Stockholders’ Representative”), the principal amount of
Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00). This Note (as defined
below) is being delivered pursuant to Section 3 of that certain Amendment to Agreement and Plan of Merger dated February 7, 2022, which
amends the Agreement and Plan of Merger dated November 12, 2021 (as amended from time to time, the “Merger Agreement”)
by and among the Borrowers, the Stockholders’ Representative and the other parties thereto. Capitalized terms used in this Note
have the meanings set forth in the Merger Agreement, unless otherwise defined. The following is a statement of the rights of the Stockholders’
Representative under this Note and Security Agreement (this “Note”) and the conditions to which this Note is subject,
and to which the Stockholders’ Representative, on behalf of the Stockholders, by acceptance and execution of the acknowledgment
of this Note below, agrees:
1. Interest.
The outstanding principal balance of this Note outstanding from time to time shall bear interest at a fixed rate equal to the Applicable
Federal Rate for short term obligations for the month of February 2022 (which is determined to be 0.59%). At any time an Event of Default
exists and is continuing, the interest rate applicable to this Note may be increased at the discretion of the Stockholders’ Representative
to an amount that is two percent (2.00%) in excess of the amount otherwise due under the Note. Accrued and unpaid interest shall be due
and payable with each payment or prepayment of principal as set forth in Section 2, below.
2. Payments
and Prepayments. Borrowers shall, jointly and severally, make payment of the amounts evidenced by this Note on the fifteenth (15th)
day of each month, commencing on March 15, 2022, in equal monthly principal installments of $104,166.67.
Any remaining or unpaid principal and interest shall be due and payable on February [15], 2023 (the “Maturity Date”).
The principal balance of this Note (together with accrued but unpaid interest on such principal amount) may be prepaid in whole at any
time or in part from time to time without penalty or premium. Any and all amounts payable by Borrowers under this Note shall be made
to Computershare Trust Company, N.A. (the “Escrow Agent”) for deposit into the “Indemnity Escrow Fund”
(as defined in that certain Escrow Agreement of even date herewith by and between the Stockholders’ Representative, CRI and the
Escrow Agent (the “Escrow Agreement”)). For the avoidance of doubt, payments of Borrowers’ obligations under
this Note are not limited to the Collateral and/or the products of the Collateral.
To the extent that any Parent Indemnified Party
is finally determined by a court of competent jurisdiction (i.e. all appeals exhausted) to be entitled to any Losses under Merger Agreement,
or CRI and Stockholders’ Representative agree in writing as the amount of such Losses and provide joint instructions to the Escrow
Agent, the amount of such Losses shall be applied as a payment of principal due hereunder in the inverse order of maturity.
3. Collateral
Security. The Borrowers hereby grant the Stockholders’ Representative a first-lien security interest in the Collateral as collateral
security for the Borrowers’ obligations under this Note. For this purpose, “Collateral” shall mean, collectively:
(i) either Borrower’s contracts specified on Annex A (collectively, the “Contracts”), (ii) all
Accounts arising under the Contracts, (ii) any Supporting Obligations related to the Accounts arising under the Contracts; (iii) all books
and records pertaining to the Collateral, and (iv) the products and/or Proceeds of the foregoing, in each case whether now owned or acquired
in the future.
All of the capitalized terms
used in clauses (i) through (iv) above shall have the meanings ascribed to them under the UCC as in effect, from time to time, in the
State of New York; provided, however, that if, by reason of mandatory provisions of law, the perfection or the effect of
perfection or non-perfection of the security interest granted hereunder in any Collateral is governed by the UCC as in effect in a jurisdiction
other than New York, then an affected capitalized term shall have the meaning ascribed to it under the UCC as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection.
This Note is subject to a
Lien Subordination Agreement dated of even date herewith between the Slipstream Communications, LLC, an Anguillan limited liability company
and senior lender to Borrowers (“Senior Lender”) and Stockholders’ Representative. Borrower hereby authorizes
Stockholders’ Representative to file such financing statements, financing statement amendments and continuation statements as Stockholders’
Representative shall reasonably determine necessary or appropriate to perfect or continue the perfection of the security interest granted
hereby and to reflect the assignments contemplated herein.
4. Representations
and Warranties. Each Borrower is duly formed and validly existing and in good standing under the laws of the State of Delaware, with
the power and authority to own its properties and conduct its business as now conducted and proposed to be conducted. Each Borrower has
the full legal power, right and authority to enter into this Note and to grant to Stockholders’ Representative the security interest
in the Collateral contemplated herein. This Note has been duly executed and delivered by the Borrowers and constitutes the valid and binding
obligations of the Borrowers, enforceable against it in accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors’ rights generally and by general
principles of equity.
5. Event
of Default. Any of the following shall constitute an “Event of Default”:
(i)
A default in the payment in full of any amounts due and owing under this Note on or prior to the due date therefor as specified
in Section 1 above, subject to Borrower’s ability cure such default within ten (10) days of such due date;
(ii)
If, pursuant to or within the meaning of the United States Bankruptcy Code or any other federal or state law relating to insolvency
or relief of debtors (a “Bankruptcy Law”), the Borrower shall (A) commence a voluntary case or proceeding; (B) consent
to the entry of an order for relief against it in an involuntary case; (C) consent to the appointment of a trustee, receiver, assignee,
liquidator or similar official; or (D) make an assignment for the benefit of its creditors;
(iii)
If a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (A) is for relief against either
Borrower in an involuntary case, (B) appoints a trustee, receiver, assignee, liquidator or similar official for either Borrower or
substantially all of either Borrower’s properties, or (C) orders the liquidation of either Borrower, and in each case the order
or decree is not dismissed within ninety (90) days; or
(iv) If the Borrower
(A) shall consent to the taking of possession by any official of all or any substantial part of the Collateral, whether or not any such
proceeding is instituted, (B) shall dissolve, wind-up or liquidate itself or any substantial part of its property, or (C) shall take
any action in furtherance of any of the foregoing.
Upon an Event of Default and
so long as Borrowers have outstanding obligations to the Senior Lender, the Stockholders’ Representative’s sole recourse shall
be against the Collateral. Stockholders’ Representative may accelerate the amounts due under this Note after an Event of Default,
but may only collect such accelerated amounts from the Collateral (including any proceeds thereof). At any time an Event of Default exists
and is continuing, the Stockholders Representative may require that Borrowers deposit the Collateral proceeds into a separate bank account
maintained for the benefit of the Stockholders’ Representative and Borrowers agree that they shall transfer such proceeds of the
Collateral within twenty (20) days of receipt thereof by the Borrowers. The Stockholders’ Representative need not provide, and the
Borrowers hereby waive, any presentment, demand, protest or other notice of any kind, and the Stockholders’ Representative may immediately
and without expiration of any grace period enforce any and all of its rights and remedies against the Collateral hereunder and all other
remedies available to it against the Collateral under applicable law. The Borrowers shall be responsible for the Stockholders’ Representative’s
costs reasonably incurred in the collection of amounts owing under this Note (as set forth in Section 7(g) below), and if any such
costs are incurred, then amounts received from Borrowers under this Note shall first be applied to costs of collection, then to the principal
balance under this Note.
6. Notices.
All notices under this Note must be in writing and will be deemed to have been duly given after it has been received and the receiving
party has had a reasonable time to act upon such communication if it is sent or served: (a) by facsimile; (b) by overnight courier; or
(c) by prepaid registered mail, return receipt requested to the appropriate notice address set forth in the Merger Agreement or the Escrow
Agreement or at such other address as any party hereto may have furnished to the other parties in writing by registered mail, return receipt
requested.
7. General
Provisions.
(a) Upon
receipt of evidence reasonably satisfactory to the Borrowers of the loss, theft, destruction or mutilation of this Note, the Borrowers
shall execute and deliver, in lieu of this Note, a new Note executed in the same manner as this Note, in the same principal amount as
the unpaid principal and interest amount of this Note.
(b) Any
provision of this Note may be amended, waived or modified upon the written agreement of the Borrowers and the Stockholders’ Representative.
Any waiver of any provision of this Note shall be effective only in the specific instance and for the specific purpose for which given.
(c) The
rights and obligations of the Borrowers and the Stockholders’ Representative of this Note shall be binding upon and benefit their
respective successors, assigns, heirs, administrators and transferees.
(d) This
Note shall be governed by and construed under the laws of the State of New York, without regard to its conflicts-of-law provisions.
(e) No
delay or failure on the part of the Stockholders’ Representative to collect amounts owing under this Note or to exercise any rights
or remedies hereunder or under applicable law shall operate as a waiver thereof.
(f) Each
Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand,
dishonor and non-payment of this Note.
(g) The
Borrowers shall, jointly and severally, pay all out-of-pocket costs and expenses (including, without limitation, the reasonable fees,
charges and disbursements of outside counsel actually incurred at standard hourly rates) incurred by the Stockholders’ Representative,
its successors and permitted assigns in connection with the enforcement or protection of its rights in connection with this Note.
(h) This
Note may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute
one and the same instrument. All signatures of the parties to this Note may be transmitted by facsimile or email PDF and such facsimile
or email PDF will, for all purposes, be deemed to be the original signature of such party whose signature it reproduces, and will be binding
upon such party.
[Signature Page Follows]
IN WITNESS WHEREOF, each of
the Borrowers has caused this Note to be executed and delivered by its duly authorized representative as of the date indicated above.
BORROWERS:
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Creative Realities, Inc.
|
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By:
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Name:
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Will Logan
|
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Title:
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Chief Financial Officer
|
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Reflect Systems, Inc.
|
|
|
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By:
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|
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Name:
|
Will Logan
|
|
Title:
|
Chief Financial Officer
|
Acknowledged and Agreed:
|
|
|
|
STOCKHOLDERS’ REPRESENTATIVE:
|
RSI Exit Corporation
|
|
|
|
By:
|
|
|
Name:
|
William E. Warren
|
|
Title:
|
President
|
Signature Page to Note and Security Agreement
Annex A-22
Creative Realities (NASDAQ:CREX)
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