Item 1.01
|
Entry
into a Material Definitive Agreement.
|
On
April 30, 2021 (the “Closing Date”), Inpixon (the “Company”) completed the acquisition of over 99.9% of
the outstanding capital stock of Design Reactor, Inc., a California corporation (“The CXApp”), with a leading SaaS
app platform that enables corporate enterprise organizations to provide a custom-branded, location-aware employee app focused on
enhancing the workplace experience and hosting virtual and hybrid events (the “Acquisition”).
The
Acquisition was consummated pursuant to the terms of a Stock Purchase Agreement, dated as of the Closing Date (the “Purchase
Agreement”), by and among the Company, The CXApp, the sellers of the outstanding capital stock of The CXApp (“CXApp
Shares”) set forth on the signature page thereto (including each other person who executed a joinder to the Purchase Agreement)
(collectively, the “Sellers”), and Leon Papkoff, as a founder of The CXApp and Seller holding approximately 45% of
The CXApp outstanding capital stock on a fully diluted basis and the appointed Sellers’ representative (the “Sellers’
Representative”). The closing of the Acquisition was subject to certain conditions precedent including delivery of a fairness
opinion to the Company concerning the fairness of the transaction, from a financial point of view, which was obtained by an independent
valuation firm.
The
aggregate consideration payable to the Sellers for the sale of the CXApp Shares consisted of a combination of cash and shares of
the Company’s common stock including:
(i)
approximately $22,500,000 in cash, minus The CXApp’s transaction expenses related to the Acquisition, plus The CXApp’s
closing cash, minus cash amounts payable to holders of CXApp’s options (the “Equity Payout”), minus the amount
that equals 70% of deferred revenue as of the Closing Date, subject to such other adjustments set forth in the Purchase Agreement,
including a post-closing working capital adjustment (such amount, as adjusted, the “Cash Purchase Price”) and of which
$4,875,000 in cash (the “Holdback Amount”) was retained from the Cash Purchase Price to secure the Sellers’ indemnification
obligations under the Purchase Agreement, for a period of 18 months from the Closing Date; and
(ii)
8,820,239 shares of the Company’s common stock, which were valued at approximately $10,000,000 based on a per share price
of $1.13 (the “Closing Share Price”), which was the closing price of common stock of the Company immediately prior
to executing the Purchase Agreement (such shares, the “Purchaser Closing Shares”); and
(iii)
an additional $12,500,000 in contingent earnout payments subject to meeting the Earnout Target (defined below) payable in shares
of the Company’s common stock at the Closing Share Price (such shares, the “Earnout Shares”) to certain Sellers
(the “Selected Sellers”) within 90 days following the 12 month anniversary of the Closing Date (the “Earnout
Payment Date”), subject to certain adjustments (the “Earnout Payment” and together with the Cash Purchase Price
and the Purchaser Shares, the “Aggregate Purchase Price”).
The
Earnout Payment, if any, will be payable only to certain Sellers if the Company (including its subsidiaries) records revenue from
the sale of The CXApp’s cloud based mobile app platform (“Revenue”) of at least $8,270,000 (the “Earnout
Target”) from the Closing Date through the 12 month anniversary of the Closing Date (the “Earnout Period”). The
Earnout Payment will be subject to a proportional reduction if actual Revenue as of the end of the Earnout Period fails to meet
the Earnout Target. For example, if actual Revenue during the applicable Earnout Period is 90% of the Earnout Target, the Earnout
Payment will be proportionally reduced by 10%. In addition, if actual Revenue recorded during the Earnout Period is equal to or
less than 75% of the Earnout Target, no Earnout Payment will be payable. If the issuance of the Earnout Shares is subject to stockholder
approval in accordance with applicable Nasdaq listing rules and such stockholder approval is not received on or prior to the Earnout
Payment Date, the Earnout Payment will be paid in cash; provided, however, that the Company may, in its sole discretion, issue
an amount of shares of common stock permitted under applicable Nasdaq Listing Rules, if any, and then pay the balance of the Earnout
Payment in cash.
The
Sellers are required to indemnify the Company for breaches of the Sellers’ or The CXApp’s representations and warranties
contained in the Purchase Agreement, provided that such losses exceed $25,000, except for breaches of certain specified fundamental
representations and warranties and in cases of actual and intentional fraud or intentional misrepresentation that have no such
threshold. The Sellers are also required to indemnify the Company for losses arising out of specified matters, including those
relating to the Sellers’ or The CXApp’s breaches of covenants contained the Purchase Agreement, certain tax matters
and any transaction expenses or indebtedness of The CXApp to the extent not paid at or prior to the closing of the Acquisition
or included in the determination of the Cash Purchase Price. Except with respect to any action based on actual and intentional
fraud or intentional misrepresentation, the Sellers’ indemnification obligations are capped at the amount of the Aggregate
Purchase Price. The funds from the Holdback Amount are the primary source for any amounts payable by the Sellers in connection
with the foregoing, until such funds are exhausted. At such point, the Company can offset any losses against the Earnout Payment,
if payable.
In
addition, the Sellers are entitled to indemnification from the Company for losses arising out of the Company’s breach of its representations
and warranties or covenants contained in the Purchase Agreement or the other transaction agreements. The Company’s indemnification
obligations are also capped at the amount of the Aggregate Purchase Price.
The
Purchase Agreement imposes on certain Sellers that will continue to provide services to the Company or TheCXApp post-Acquisition,
for a period of 3 years from the Closing Date, customary non-compete and non-solicitation restrictions, all of which are subject
to certain exceptions and qualifications. In addition, Leon Papkoff will join the Company as an executive vice president leading
the Company’s CXApp division. Prior to the closing of the Acquisition, The CXApp also entered into a services agreement with
Zivix Technology Limited (China), an entity controlled by Chan Hok Lwong who is also a Seller and a service provider under the
services agreement, to provide various services, including engineering and app development for The CXApp platform.
In
accordance with the terms of the Purchase Agreement, the Company has agreed to file a resale registration statement (the “Registration
Statement”) as promptly as practicable, subject to the expiration of the prohibition period set forth in Section 4.12(a) of that
certain Securities Purchase Agreement, dated as of February 16, 2021, by and between the Company and each purchaser identified on the
signature pages thereto, to register the Purchaser Shares for resale and to use commercially reasonable efforts to cause the Registration
Statement to become effective no later than the date that is 60 days after the date the Registration Statement is filed. Following the
effectiveness of the Registration Statement, each Seller agreed that, for so long as such Seller owns any Purchaser Shares or any Earnout
Shares, such Seller will not, directly or indirectly, without the prior written consent of the Company, agree or offer to sell, dispose
or otherwise transfer any such shares of common stock, except that a Seller may, on any trading day, sell that number of shares that,
when aggregated, is equal to 10% of the daily trading volume for the common stock on the Nasdaq Capital Market, or any other trading market
on which the common stock is listed, on such trading day; provided, that a Seller will be permitted to sell during any 30-day period (i)
an amount of Purchaser Shares up to 25% of such Seller’s initial aggregate amount of Purchaser Shares owned and (ii) an amount of
Earnout Shares up to 50% of such Seller’s initial aggregate amount of Earnout Shares owned.
Pursuant
to the terms of the Purchase Agreement, effective as of the Closing Date until December 31, 2021, each Seller granted to and appointed
the Company as its proxy and attorney-in-fact (with full power of substitution), for and in the name, place and stead of such Seller,
to vote at any meeting of shareholders (each, a “Meeting”) of the Company all of the Purchaser Shares owned by such Seller
as of the record date of such Meeting in accordance with any recommendation of the Company’s board of directors, except with respect
to a vote on any proposal that materially impacts The CXApp’s ability to achieve the Earnout Target.
The
Purchase Agreement contains customary representations, warranties and covenants and termination rights.
The
above summary of the Purchase Agreement does not purport to be a complete description and is qualified in its entirety by reference to
the full text of the Purchase Agreement, which is attached as Exhibit 2.1 to this Current Report on Form 8-K and is incorporated herein
by reference.