March 5, 2013 – Toronto, ON
Smart Employee Benefits Inc. (“SEB”) (TSX VENTURE:SEB), is a technology company providing software, solutions and services specializing in managing group benefit solutions and healthcare claims processing environments for corporate, government and non-profit clients. SEB announced a Memorandum of Agreement with the SOMOS Group of Companies (“SOMOS”) on January 9, 2013 whereby SOMOS was to be acquired by SEB (the “Transaction”). SEB has received TSX Venture Exchange approval for the Transaction and has now closed the Transaction.
SOMOS shareholders, as part of the Transaction price terms, received $325,000 in cash, 2,500,000 SEB shares (“Shares”) at a valuation of $0.30 per share and 1,000,000 SEB Share Purchase Warrants (“Warrants”). The Shares will be escrowed over a period of 30 months released in various amounts at 6 month intervals. The Warrants will have a term of 60 months and an escalating exercise price per common share of SEB every 12 months of $0.45, $0.55, $0.65, $0.70, and $0.75. In addition, the purchase price also included SEB issuing to the SOMOS shareholders a five year convertible note in the aggregate principal amount of $400,000 (the “Convertible Note”). The Convertible Note bears interest at a rate of 3% per annum. Interest shall be paid quarterly and principal may be repaid annually in equal installments. The Convertible Note shall be convertible into common shares of SEB at an escalating conversion price of $0.45, $0.55, $0.65, $0.70 and $0.75 per common share of SEB from years one through five, respectively. The parties have also agreed to adjust the purchase price upwards by a portion of outstanding SRED credits collected by SOMOS, post closing, to a maximum increase in the purchase price of $287,000, as such credits are paid/remitted to SOMOS or for its benefit.
As a condition of the transaction, Alan Boyce, the major shareholder of SOMOS, will remain as CEO and Adam Jasek will assume the responsibilities as President/COO; and both shall remain as part of the executive management team of SOMOS, under long-term management contracts.
SOMOS is an Ottawa-based Management Consulting, services and training company in business since 1991. SOMOS offers management solutions, professional services, training and project management solutions to corporate clients in technology, aerospace and defense, and governments, both federal and provincial. SOMOS has extensive vendor arrangements with corporate and government clients. SOMOS has enjoyed significant, profitable growth in the past few years where sales are now exceeding $7.0 million annually with a substantial pipeline of annuity business and business prospects.
Alan Boyce, CEO of SOMOS, stated, “SOMOS has a strong base of business with Ottawa clients, including the federal government. We have solid client relationships and have enjoyed healthy growth to date. Over the past year we have been fortunate to have Adam Jasek join us and, with this transaction, assume the role of President/Chief Operating Officer. SOMOS’ growth prospects have developed exponentially over the past year and to take advantage of these prospects we need a strong partner that brings both capital and expertise.
We have had a personal and business relationship with John McKimm for many years and have been impressed with John’s vision and his ability to expedite growth. With SEB and John as our partners, SOMOS’ growth strategy moves beyond organic initiatives to include acquisitions.
Over the past months we have formulated a growth strategy that is very exciting. In addition to the increased financial strength of SOMOS, SEB significantly expands opportunities for SOMOS to bring additional value to our clients, particularly in providing software, solutions and services in healthcare and supply chain solutions. The transaction with SEB brings critical mass, capital and expertise to expedite growth for SOMOS with Ottawa clients and on a national scale. The synergies between the companies are significant.”
John McKimm, President/CEO of SEB, stated, “We have had a long term relationship with SOMOS, both business and personal. We have tremendous respect for both Alan and Adam. SOMOS has a strong base of business in Ottawa, particularly within the federal government. There are significant opportunities to provide high value-added solutions with SOMOS clients both in healthcare and supply chain. The SOMOS Transaction will give SEB access to vendor relationships and the client credibility to expedite sales opportunities in a very important sector of the Canadian marketplace for SEB. We are looking at SOMOS as the base platform for launching an organic and acquisition growth strategy in the Ottawa area.
We have identified major strategic opportunities for SEB which will be significantly expedited with the SOMOS transaction. We are excited about the prospects of bringing Alan and Adam into the SEB executive team. As a result of this transaction, Alan and Adam will both have significant shareholdings in SEB and will add depth, skills and business relationships to the SEB executive team.
SOMOS will be operated as the Ottawa base for the SEB Group of Companies, while maintaining its current brand and software, service, and solution offerings. SOMOS is expected to significantly enhance the opportunities for SEB health claims processing solutions with SOMOS’ clients. As a result of the SOMOS Transaction, SEB has elected to not close the Joint Venture Agreement or the Investment by China-based HighCom.”
SEB’S GROWTH STRATEGY:
Mr. McKimm further stated, “A key component of SEB’s growth strategy in 2013 is acquisitions. Acquisitions will have three objectives: (1) the acquisition of key client and vendor relationships in both government and corporate sectors, (2) the acquisition of unique technologies that enhance SEB’s technology solutions, particularly in healthcare, and (3) expediting the path to consolidated profitability while expanding a strong base of clients and sales to launch organic growth initiatives. The acquisitions of Logitek Technology Ltd. (“QLogitek”- closing announced February 7, 2013) and SOMOS (closing announced March 5, 2013) accomplishes all of these objectives. Each company has a strong foundation of annuity revenue from a high quality client base and a consistent history of profitability and positive cash flow. The synergies between the two companies include sales and technology opportunities, along with operational cost savings. SEB has also identified a number of other strategic acquisitions which are in various stages of negotiations. All acquisition targets are profitable and will significantly expedite SEB’s organic growth strategies, both revenue and profitability, as SEB and SEB subsidiaries deploy SEB technology solutions and sales strategies across the consolidated client base.”