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Quisitive to buy Menlo Tech for cash, securities

2019-12-09 16:08 ET - News Release

Mr. Mike Reinhart reports

QUISITIVE ANNOUNCES ACQUISITION OF MENLO TECHNOLOGIES, INC. AND FINANCING TRANSACTIONS

Quisitive Technology Solutions Inc. has agreed to a transaction to acquire all of the issued and outstanding shares of Menlo Technologies Inc. and its subsidiaries, a leading provider of Microsoft technology, corporate consulting, and business software and systems based in Menlo Park, Calif. The details of the transaction are set forth in a definitive share purchase agreement between the company, a wholly owned subsidiary of the company and the shareholders of Menlo that was negotiated at arm's length. Completion of the transaction is subject to a number of standard conditions, including receipt of all regulatory approvals and the acceptance of the TSX Venture Exchange. The transaction is expected to close on or about Jan. 1, 2020.

Like Quisitive, Menlo Technologies is a global Microsoft technology services company specializing in cloud development, data analytics, mobile technology and enterprise business application services. Menlo offers managed onshore and offshore development services from its Silicon Valley headquarters and offshore development centre in Hyderabad, India. Over the trailing 12 months ended Sept. 30, 2019, Menlo generated unaudited revenues of approximately $17.5-million (U.S.) and unaudited adjusted earnings before interest, taxes, depreciation and amortization of approximately $2.4-million (U.S.).

"We are thrilled to join forces with the Quisitive family," said Gary Prioste, Menlo chief executive officer. "The Quisitive brand has significant strength that when paired with our competencies will allow us to scale beyond our geographies and accelerate our ability to reach and engage with larger enterprise customers."

Through application modernization and business application consulting, Menlo supports hundreds of clients globally. Its cloud application expertise supports its Microsoft Dynamics ERP (enterprise resource planning) practice and, with an office in Washington, D.C., has deep knowledge of government compliance. Its offices on the West Coast are recognized as an industry leader in cloud development and Azure migrations.

"The integration of the Menlo competencies into the Quisitive portfolio will activate substantial enterprise growth in our North American market," said Quisitive CEO Mike Reinhart. "Menlo has a strong reputation as a Microsoft gold partner in the cloud development space and brings forth a new capability in their onshore and offshore development model that will provide access to a net new customer set and expand our service portfolio for our customers. The Menlo acquisition is a strong complement to our June, 2019, CRG acquisition, accelerating our collective vision to build the premier Microsoft solutions provider in North America for Microsoft Dynamics business solutions and cloud innovations. The combination of CRG and Menlo's Microsoft Dynamics businesses position Quisitive as a leader in the Microsoft Dynamics partner community."

The consideration for the purchased shares will consist of the following: (i) $3,774,190 (U.S.) in cash, payable to the vendors; (ii) the issuance to the vendors of 19,784,981 common shares in the capital of Quisitive; (iii) the issuance to the vendors of convertible debentures with an aggregate face value of $5-million (U.S.) accruing at a rate of interest of 10 per cent per annum compounded on an annual basis and payable annually, having a term of up to 36 months from the closing date of the transaction. The holders of the notes may, at their option, elect to convert the principal outstanding and all accrued and unpaid interest owing thereunder into Quisitive shares at a deemed price of 20 cents per Quisitive share at any time on or prior to the maturity date, and the company, at its sole discretion, will have the option to automatically convert the notes if the volume-weighted average trading price of the Quisitive shares on the TSX-V is greater than or equal to 40 cents for 20 consecutive trading days.

The vendors may also be entitled to additional contingent consideration in the form of a performance earn out if Menlo achieves certain financial thresholds during the three-year period following the closing of the transaction. The amount of the earnout is a base maximum of $3.5-million (U.S.), plus an additional incentive amount of $1-million (U.S.) based on exceeding growth targets during the first two years. The earnout is payable 50 per cent in cash and 50 per cent in Quisitive shares.

The finances representing the cash payment, acquisition fees and working capital for the company will be obtained pursuant to a 12-month $7.5-million (U.S.) demand loan from an investment company with interest accruing based on a Bank of Montreal prime plus 8.05 per cent per annum, calculated and payable monthly, with the principal amount to be repaid on demand or within 12 months from the date of initial advance of finances. The loan will be a direct obligation of Menlo Technologies Acquisition Inc. guaranteed by certain subsidiaries of the borrower and will be secured by: (i) a first ranking general security interest granted by the borrower and each of the guarantors over all of their respective present and future personal property; and (ii) a pledge of the purchased shares.

The borrower will incur fees payable in cash upon closing of the transaction equal to 3.75 per cent of the loan amount and 1.6 per cent of the sum of the cash payment and the notes.

About Quisitive Technology Solutions Inc.

Quisitive is a premier Microsoft solutions provider that helps enterprise organizations move, operate and innovate in the Microsoft cloud: Microsoft Azure, Microsoft Dynamics and Microsoft O365, as well as provide proprietary software-as-a-service solutions such as CRG emPerform, LedgerPay and business solutions from other technology partners that complement the Microsoft platform. With a legacy of deep technical and business expertise, Quisitive is empowering the enterprise to navigate the ever-changing technology climate their business relies upon.

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